New CML analysis shows effect of FSA proposals on current lending

[Legal Beagles]

Council of Mortgage Lenders (CML) publish follow-up research looking at what effect the Financial Services Authority’s (FSA) responsible lending proposals may have had on lending levels in 2010.
The CML last month revealed research into the historical impact of the FSA responsible lending proposals, showing that they would have had a greater impact than the regulator indicated in its own analysis. The CML had carried out follow-up research looking at the effect of these proposals may have had – both in isolation and in combination – on lending levels in 2010. Amongst results, the CML highlight that the FSA’s core income-expenditure affordability assessment could have affected 11% of borrowers this year.
The FSA have referred to a set of “green” (tentative) proposals, which include:

• Assessing a borrower’s ability to repay a mortgage on a full capital-plus-interest basis, even if some or the entire loan is interest-only;
• Assessing ability to repay on the basis of a maximum term of 25 years, even if the actual repayment period is longer than this;
• Applying a ‘buffer’ to the affordability test for borrowers with an impaired credit history; and
• Applying an interest rate stress test, to assess the ability of a borrower to pay at higher rates.

The CML proposes that the “green” proposals would have had a significant impact on lending decisions this year, despite the more cautious criteria currently being applied to mortgage applications. The CML illustrate this in numerical terms, by stating that in a market of 567,000 of loans advanced to August 2010, some 260,000 may not have been granted on their current terms.
For more information on the research visit the CML website.


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