Affordability - only a problem for the inexperienced

The first quarter of 2016 is over and I've no doubt the second charge industry is breathing a collective sigh of relief.

Related topics:  Specialist Lending
Steve Walker
24th May 2016
Steve Walker Promise Solutions
"Speculation was rife with some lenders that acceptances would drop by as much as 30% as a sole result of new affordability checks."
- Steve Walker

The three months to MCD implementation on March 21st were tough. Indeed, to say master brokers were approaching the regulatory shift with trepidation would be a massive understatement. As the second market prepared to move under the FCA’s regulatory control, those operating in it prepared for business levels to fall - namely as a result of the affordability checks lenders would now be required to perform.

Speculation was rife with some lenders that acceptances would drop by as much as 30% as a sole result of new affordability checks. Well, now we’re two months on (three if you consider the fact the seconds market for the most part made the move to MCD in mid-February), have those pessimistic predictions been realised? The short answer is, thankfully, no.

While I can’t comment for individual lenders and whether they have suffered any losses in line with the pre-MCD predictions, I can say that we are finding the number of loans solely rejected on income is far less that we expected.

Of course, that’s not to say the process hasn’t become tougher. We’re having to work harder to make each case fit. We may need to look for additional income, something that wouldn’t have been necessary in the past. For consolidation loans we may need to be a little more selective in terms of which loans are consolidated and which aren’t and for some borrowers they may need to borrow slightly less. There’s more effort and more creativity required but for most clients there is still a suitable option which is affordable.

The impact hasn’t been nearly as bad as we expected. What it has done is demonstrate once again the value an experienced master broker or packager can provide. There is no substitute for having hands on daily experience of up to 20 lenders to best match a borrowers complex circumstances to a lender willing to listen or bend. Now even the most prime borrowers may have a degree of complexity around their ability to demonstrate affordability.

One of the bumps which needs to be ironed out is more accurately assessing affordability early on. Borrowers often don’t have income and affordability information immediately to hand. Whether introducing brokers are referring an enquiry or selling the loan themselves, they can really help make the process smoother for their clients by providing any information they have at the outset. Whilst it needs to be verified, it reduces the guess work and facilitates faster results.

Lenders’ increased focus on affordability will only cause problems for the inexperienced. Partner with a firm with a greater understanding of the market and you’ll be fine.

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