Toni Smith is sales operations director at First Complete
Mortgage affordability will become a hotter and hotter subject under the MMR. At the moment lenders tell me that there is a surprisingly large discrepancy between what is put down as the client’s affordability at Decision in Principle stage and what is put down for the same client when the full mortgage application is submitted.
Whilst gaps like this on a regular basis may impact an adviser’s reputation with a lender, finding out somebody’s actual expenditure is surely a minefield – especially when, as a broker, you may only just have met the client.
So, for example, how do you judge whether someone is telling the truth regarding how much they spend on food? Many lenders will use figures from the Office of National Statistics to get a ball park figure, but the accuracy of this really depends on where someone lives and what sort of lifestyle they have. So, for a family of three, is £100 a week a lot or not very much? I suppose that it depends very much on whether they shop at Waitrose or at Lidl and definitely on how much they eat out. I expect everyone reading this blog spends a different amount as their ‘normal’, so it is very hard for a broker, let alone a lender to know just what is accurate, but put a wildly wrong amount down and it could jeopardise your client’s ability to get a mortgage and the lender’s willingness to deal with you.
The same will be the case for all other bills and the need for accuracy here will only increase once the MMR is introduced when lenders will need to see a complete budget breakdown in order to make their affordability calculations. In some ways by completing a detailed budget it will make it harder for people to guess or estimate as the different parts will need to add up to their income and the amounts on their bank statements.
Increasingly there will be a certain amount of judgement that goes into this; there are bound to be some things that are easy to spot, such as if someone is declaring that they have a family of three and yet they are spending £800 on food, they are either likely to be shopping at very expensive supermarkets or not declaring the number of children that they actually have!
But how much can you challenge the client on first meeting in order to get accurate information to provide the lender with what they need while still keeping the client? Food seems like a facile example but it could change the way that brokers deal with their clients. Under MMR it is not only that the mortgage process will take longer, but brokers will need to set a client’s expectations of the type and depth of information that they will require right at the start of the process.
Ally the MMR with the fact that proc fees are increasingly being linked to quality and it will make it much more difficult for a broker to meet with a client for the first time and immediately submit a DIP based on information that the client has estimated. Every lender has different quality measures at the moment and one measure is to look at the ratio of DIPs to completion; others are to measure the accuracy of information at DIP stage compared to at full application. What it could well mean is that initial applications are made at the second or third meeting with the client.
Lenders will also impact on this in the amount of time that they leave a product or a rate out for. Brokers will feel much more comfortable at taking their time to investigate and gather accurate information from their client if they know the rate will be there for some time. If rates start being pulled very quickly once again it encourages the behaviour of getting the DIP in as quickly as possible to secure the rate.