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Stress tests will not bar mortgage applicants

Nia Williams

September 2, 2013

Research by IMLA found just 7% of intermediary lenders expect significantly more people will be turned down for a mortgage because of new stress tests, which will examine whether borrowers could afford their repayments in the event of interest rates rising.

IMLA’s Intermediary Lending Outlook shows that almost three quarters of lenders are confident that affordability checks will not impact borrowers in large numbers (73%), while the remaining 20% are unsure.

Peter Williams, executive director of IMLA, said: “The MMR rules on affordability are built on common sense and are not too far removed from how many lenders already approach the issue. Recent experience has shown how important it is to ensure that mortgage borrowers can reasonably manage their commitments, not just now but in the future.”

Overall responsibility for affordability checks will officially pass from brokers to lenders when the MMR takes effect in April 2014. While many of its provisions are already standard practice for lenders, mortgage brokers are less convinced that aspiring borrowers will be unaffected.

Although over a third of brokers do not expect stress tests will significantly reduce the number of successful mortgage applicants (34%), close to half predict that considerably more consumers will find they are turned down (44%).

However, brokers are significantly more confident about the impact of the MMR than they were at the start of the year. Two thirds (66%) are not at all worried in August 2013, compared with 42% in January 2013, and the percentage with significant worries has dropped from 12% to 4%.

In contrast, 67% of lenders are currently worried about the impact of MMR – but despite their extra responsibilities under the new rules, no lender has serious concerns.

And Williams said: “We are in unfamiliar territory when it comes to current interest rates so we have to be pragmatic and anticipate the likelihood of change. Falling numbers of arrears and repossessions in recent years show a responsible approach to mortgage approvals, and lenders are working hard to ensure their existing tests meet the full MMR requirements without unfairly disadvantaging consumers.

“Although the regulatory buck will rest with lenders from April 2014 there is still a collective responsibility to put affordability at the heart of the industry. This involves brokers working closely with lenders to help finalise the rules of engagement, while also ensuring that customer expectations are managed and applications suitably vetted.”


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