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Affordability calculations criticised

Ramesh Sharma

April 1, 2006

With a growing number of lenders adopting an affordability-based approach, a number of brokers have said this method is still causing confusion, as the lender in many cases fails to disclose exactly what the affordability is based on.

Mike Pendergast, IFA at Zen Financial Services, said lenders using affordability calculations should highlight the multiples it works from. He explained: “Brokers need to have some kind of calculator available so that we can see whether a client is likely to get the deal they are after. Affordability-based lending is a good move as long as there is some form of criteria that intermediaries can check it against to at least get a view of whether the client is likely to be accepted or not. In some cases you really don’t know until it has been accepted or rejected, which increases the time and costs spent on the case.”

Colin Snowdon, managing director of Freedom Lending, said: “Some lenders have a ‘black box’ mentality to lending, where the broker often can’t understand why an application has been refused, because the lender doesn’t give out this information. We are very transparent to intermediaries about our calculations and we made an early decision not to use income multiples as we didn’t think this was right.”

Murdo McHardy, head of product development and marketing at Scottish Widows Bank, added: “What brokers find frustrating is that lenders have changed their affordability, but do not then tell the adviser exactly what this is based on.”

He confirmed Scottish Widows Bank had changed its affordability calculations for its offset and flexible mortgages, while its income multiples for its professional mortgages had also been extended, with all calculations available for brokers.


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