You are here: Home - News -

FPC fails to apply common sense to mortgage affordability

by:
  • 04/04/2017
  • 0
FPC fails to apply common sense to mortgage affordability
The Financial Policy Committee’s (FPC) decision to keep the affordability stress rate for mortgage customers at 3% is a missed opportunity to apply common sense, said Legal and General’s Jeremy Duncombe.

In the minutes released today of the meeting on 22 March, the FPC said its decision to ensure that borrowers could still afford their mortgages if, over the first five years the Bank rate were to rise by 3%, would remain in place. As the 3% is applied to the lender’s Standard Variable Rate this often results in an applicant’s income being stressed at 7%.

Housing market experts have been vocal about the damage the stress rate has inflicted on first-time buyers’ chances of obtaining a mortgage. Speaking at Mortgage Solutions’ event last year, Richard Donnell, research and insight director, Hometrack, said stressing a mortgage applicant’s income at a rate of 7% was turning the first-time buyer market into an 85% loan-to-value playing field.

Jeremy Duncombe, director, L&G Mortgage Club, (pictured) said the FPC’s decision was not unexpected.

“The move will do nothing to help first-time buyers who have already seen properties become more expensive due to house price inflation outstripping wage growth,” he said.

In research released by HSBC, it showed the difficult economic landscape millennials faced when looking to buy a home. In 2016, house price inflation was 7.5% compared to predicted wage inflation of 1.9% this year.

Duncombe added: “Base rates are at a record low and show no sign of increasing significantly in the medium term, so it’s disappointing to see that this can’t be recognised by lenders in the stress tests they use. Prudent lending is vital for the long-term sustainability of the mortgage market, but an opportunity for common sense lending decisions seems to have been missed.”

David Copland, director of TMA mortgage club agreed that a no change result came as little surprise.

“The outlook for interest rates has been pretty benign so I was not anticipating a change in the stress rate,” he said.

“I do not expect a reduction from the 3% rate for some time to come unless market sentiment changes substantially in favour of rates rising more quickly.”

Copland said the thought it was more likely the FPC would consider increasing the differential.

“An increase in the stress rate would mean more clients failing lenders’ affordability criteria, making life more difficult for first-time buyers and trapping existing borrowers in their own homes.”

The FPC said it would keep the decision under review.

There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
  • RT @synergycfpiotr: Happy red cheek day 😂😂2nd instalment I enjoyed contributing to the debate with @AldermoreBank @CharlesRAMcD and @mortga
  • RT @OTJournalist: Heck of a fall in Provident share price: 70% down today. Shares maxed at £33 in October, now, £5ish. Wowzers! #DoorstepLe
  • RT @PSLadvisers: "product transfers & remortgage activity levels will rise considerably with £130bn of product cessations due in the next 6…
Read previous post:
BTLMF17 David Whittaker-7
Ltd Co takes 40% of specialist BTL market – MFB

Limited company purchases and remortgages now make up 40% of the buy-to-let (BTL) market, according to Mortgages for Business.

Close