As from April, the FCA will require lenders to undertake stringent affordability tests to assess borrowers’ abilities to repay their mortgages before releasing funds.
But Burgess is appalled that only a short-term assessment – affordability at the time of granting a mortgage – is required by the regulator.
He suggests Mortgage Market Review tests should also assess how repayments will continue to be made if an income goes.
Burgess is calling for the FCA to urge lenders to take a more prudent approach when scrutinising affordability and include stress-testing against income loss.
So far his requests to regulatory representatives have either been met with ‘I can’t make rules’ or ignored.
The Prudential Regulation Authority was equally non-committal; advising it was ‘a conduct and not a prudential matter’.
Burgess said: “This response is appalling. Over 1.2million households took out a mortgage, moved up the housing ladder or re-mortgaged their properties last year, and 96% of those will have no financial support mechanism to help them if their salary stops due to redundancy or illness.”
Changes to the Government’s Support for Mortgage Interest Scheme, with a capital limit reduction from £200,000 to £100,000, a waiting time increase from 13 to 39 weeks and the benefit becoming a loan to be clawed back following death or a house sale, take effect from 31 March next year, further compounding the issue.
Burgess added: “I’ve surveyed all UK mortgage lenders and with very few exceptions, none have current plans to offer financial protection plans. This is detrimental to consumers and must be addressed.”