'I worry people on average incomes will now struggle to get a mortgage': Building society boss says build more homes over tightening mortgage rules
- New rules from Saturday will make it harder to obtain a mortgage
- Ipswich BS boss says focus should be on housing supply - not borrowers
- Believes those earning less than £25k a year will struggle to get mortgage
The Government should address housing supply problems rather than limiting those on average incomes from obtaining a mortgage, according to the chief of Ipswich Building Society.
Paul Winter told This is Money that many aspirational homeowners are set to face a ‘double lockout’ in the form of unavailable lending and a lack of homes to choose from.
His comments come ahead of new regulations that, from Saturday, will make it harder for people to obtain a mortgage or remortgage their existing home.
Double lockout: Paul Winter says that the focus should be on increasing housing supply, not locking out those with small incomes from obtaining a mortgage
Under new regulations from the Financial Conduct Authority under its Mortgage Market Review, Winter argues it will become far more difficult for who he dubs ‘mortgage misfits’ to obtain a home loan.
This term, he says, relates to borrowers who could potentially be let down by a system that in many cases relies on automated assessments based on calculations of the ‘average’ borrower.
Types of misfit customers include those earning less than £25,000 a year, small business owners, self-employed and those who have different income sources such as pensions, equity in a business or property, rental income and investments.
Many banks and building societies have already implemented changes from the MMR ahead of the 26 April deadline. This includes stress-testing potential borrowers to see if they could afford their mortgage if circumstances pushed the rate to seven per cent.
Winter says: ‘It is entirely appropriate that the FCA wishes to introduce regulation to ensure the lending excesses of pre-2008 are not repeated and that irresponsible lending is firmly tackled.
‘However, I am concerned that people on average incomes may now find it harder to obtain a mortgage and I believe this may prove to be an unintended consequence of the methods used to implement affordability requirements.’
Ipswich Building Society – established in 1849 - is a small ripple in the mortgage lending world. It has 65,000 members, with 80,000 savings accounts and more than 5,000 mortgage accounts, along with nine branches.
It has declared its support for those living in the heartland area of the East of England and says it will focus on its manual underwriting process to ensure careful consideration of individual circumstances.
The society added that it will retain its existing methods of verifying income and will use an applicant’s own evidence of spending rather than relying on a computer model to determine what ‘typical’ spending looks like.
Data from the building society shows a family of two adults and two children wishing to purchase a property for £125,000, with a household income of £30,000 and with a 10 per cent deposit, would not meet the requirements of affordability using expenditure data from a computer model.
Analysis comparing the computer model expenditure data to the evidence of expenditure of ‘real’ applicants has shown that using the latter would actually pass the affordability test.
Winter adds: ‘Ipswich Building Society has always manually underwritten and carefully reviewed the financial situation of our mortgage applicants.
‘While we cannot change the new affordability model, we will offer borrowers the option to provide their own expenditure evidence rather than relying on a computer model. We hope this will help more people to obtain a home of their own.’
He recommends potential borrowers check credit files on a regular basis to ensure there’s nothing unpaid logged or that no fraudulent activity is present.
Other tips to pass the test include ensuring old bank cards are closed, all accounts in your name are registered to the same address, to put a landline phone number on applications to demonstrate stability and ensuring you are registered on the electoral roll.
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