It’s a story of best intentions and opinion that ultimately results in the death of the donkey. It’s a useful analogy that I shall return to later.
The Mortgage Market Review is fast approaching and as a building society our approach to affordability has always been robust and as a result our arrears levels are consistently below the CML averages. Our personalised underwriting also means we have the capability and understanding to meet the requirements of affordability, unlike many banks where I suspect an over reliance on automation will leave them with a greater gap to counter.
Whilst we have the transition from non-advised to advised to complete, I do wonder how banks will respond following most of them leaving the advice market post-RDR.
In terms of impacts, the greatest concern I have is for those consumers who may find the requirements of affordability under MMR harder to meet.
Those with a good credit history but may be self-employed, a contractor, approaching retirement or on a lower income. Prior to MMR they would have spoken to a broker for advice and then received a robust underwriting process and if okay, been accepted. In the post-MMR world that will be harder for building societies to do and I suspect potentially impossible for the banks.
This is where my story about the donkey can provide useful context. A passer-by suggested the boy should ride the donkey, another suggested that the man should ride the donkey too; declaring “Why else have a donkey?” Then someone else noticed that the donkey was clearly under too much pressure. So another helpful passer-by suggested that the man and the boy carry the donkey.
Like the sub-prime mortgage market, borrowers in this market were subject to financial pressure beyond their means, and quite rightly MMR aims to ensure that does not happen again.
Back to the story, the donkey now has his feet tied to two poles so the man and the boy can hold him aloft. Much better for the donkey, until the man and the boy slip, catapulting the donkey into a river, where he drowns. This is the equivalent of MMR tying a borrower up so tightly that a mortgage becomes unobtainable.
Reducing access to home ownership is not the intended consequence of MMR. Don’t get me wrong I welcome the principles of MMR and ensuring borrowers truly understand and can afford the mortgage products they take. But, some good borrowers will find it harder to obtain a mortgage in the post MMR world.
Paul Winter is chief executive of Ipswich Building Society
