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Brokers divided over Nationwide’s affordability restrictions

by: Samantha Partington
  • 22/07/2014
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Brokers divided over Nationwide’s affordability restrictions
Nationwide has increased its stressed rate for all affordability calculations to 6.99% and imposed an income multiple cap of 4.75 times gross income for all employed applications from today.

The building society said it had made the changes following the Financial Policy Committee’s (FPC) guidance.

In June the FPC announced all lenders should apply a stressed rate which assumed a growth in base rate of 3% and placed a restriction on lending above 4.5 times gross income.

It said lenders could hold up to 15% of their new mortgage book on high loan-to-income (LTI) ratios, loans above 4.5 times a borrower’s income.

The rule does not come into force until October 1 but any mortgages written after June 26 will count towards this quota.

But despite the high LTI allowance Nationwide has decided to impose a blanket 4.75 times cap across all employed applications.

The move has caused brokers to question the purpose of the rigourous affordability checks improsed by the Mortgage Market Review (MMR).

Ashley Brown, director of brokerage Moneysprite, said: “The MMR was introduced so lenders could make sensible lending decisions based on individual circumstances with a built in stress test.

“The BoE has decided that because the London property market is running ‘hot’ borrowers in all parts of the country should be restrained with an arbitrary multiple. This must be a regressive step and questions why we all bothered with much of the MMR.”

Brown suggested Nationwide may use its high LTI quota to boost branch network business which he said would disadvantage customers looking for advice from brokers.

Dean Mason, owner of Masons Financial Planning, blamed the regulators for targeting the wrong mechanism to cool down a housing bubble.

He said: “I can’t understand why the powers that be are trying to kerb the perceived ‘housing bubble’ by making it harder for borrowers when the real problem lies with agents over inflating prices, misleading vendors on expectations and intimidating buyers into committing.”

Mason praised Nationwide for being a ‘haven’ for sensible lending decisions where others have missed the point of the MMR.

“A maximum 4.75 times income is still generous compared to most if it is actually prepared to lend to this level where client circumstances allow,” he said.

Brown said he feared the self-employed would be the most affected by the the income cap measures.

“Already they are heavily penalised by affordability calculators and I suspect the new rules will continue and exacerbate this situation.”

But Colin Chapman, director of intermediary firm Genesis, said the restrictions were a positive measure which would not prove to be prohibitive in many cases.

“Whilst the obvious broker view point maybe to be vent frustration at what seems to be another lender retreating to ultra conservative stress testing, the overall impact will not be too troublesome. This is especially true in my local area which isn’t that affluent with very high property prices.

“I think long term the cautious approach is better than the unchecked boom times of the mid 2000s. No one wants a return to the broker dark days of 2008 to 2012.”

Cases where the initial decision in principle was keyed before 5.00pm Monday 21 July will be assessed under current affordability rules.

From Thursday 21 August 2014 any case that requires a reprocess will be assessed under the new affordability calculation.

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