Take, for example, the recent missives from the two main mortgage lender trade bodies – the all-encompassing Council of Mortgage Lenders (CML) and the broker-focused, Intermediary Mortgage Lenders’ Association (IMLA).
Just this week in its annual member review, the CML reiterated its belief that lenders’ implementation of the Mortgage Market Review (MMR) has had little impact on mortgage lending. I think there are many lenders themselves, certainly brokers and their clients, who would wholeheartedly disagree with that view. Indeed, a recent report from IMLA itself – let’s not forget that all IMLA members are also fully paid-up members of the CML as well – offered up a number of examples where the implementation of the MMR, and the way it is being interpreted by lenders, has had a significant impact on lending.
The big headlines from the IMLA report were made by the somewhat staggering revelation that some potential borrowers in their 40s have been turned down for loans by lenders because their mortgage term would extend past their State retirement age, and the lender concerned could not be certain of what the borrower’s income would be in retirement. Essentially, the lender was saying that 25 years from hence we don’t know how much money you’ll be bringing in, therefore you can’t have this loan now.
To say this is affordability checking to the nth degree would be something of an understatement. Pre-MMR, is there anyone out there in the property sector who came across such cases where 40 year-old borrowers were being turned down for loans and given this reasoning? It is quite frankly ridiculous. I can fully understand lenders wanting to review the retirement income of say a 55/60 year-old who was looking for a term that would take them past their retirement age, but someone 15/20 years younger?
Who knows what might happen over that 25-year term? Could any individual placed in such a position give anything more than a ‘best guess’ at what their income level would be once they went past State retirement age? Given that people are tending to work far longer than this point anyway, is this even a relevant age to be focused on? Borrowers cut their cloth accordingly, don’t they, and would surely do the same if they had a mortgage to pay each month.
The fact is that lenders clearly feel cowed by the MMR rules, and as a number have pointed out, they are fearful of the regulator retrospectively censuring and fining them if such loans can’t be serviced. I’m afraid to say that the compliance and legal departments – and I don’t underestimate their importance in the process – appear to be winning here and we have ‘gold-plating’ of the rules on what seems like an industrial scale. The suggestion appeared to be that such hardened affordability attitudes by lenders were being pulled back somewhat, and there was going to be a common sense approach, however judging by the examples cited by IMLA this appears to be some way off.
Therefore, agents need to be acutely aware of the type of purchasers that could be coming through their doors. This is a marketplace where a mortgage agreement in principle is absolutely vital because, regardless of what the borrower looks like on paper, until they secure the go-ahead from a lender, then any property purchasing is going to be on hold. It’s an obvious point but make sure that buyer has the funds necessary to be able to back up any offer – otherwise everyone is wasting their time.
This will be my last blog of 2014 so it just leaves me to wish all Property Reporter readers a very Merry Christmas and let’s hope we have a much more sensible approach to lending and a particularly prosperous 2015 for the UK property market. See you next year.
