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CML chair calls for lower stress tests for mortgage borrowers

  • 27/01/2017
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CML chair calls for lower stress tests for mortgage borrowers
The Council of Mortgage Lenders (CML) chairman Peter Hill has criticised regulation for locking people out of the market, urging for reduced stress tests placed on applicants.

Hill (pictured), who is also chief executive of Leeds Building Society, told the Financial Times that regulators should revisit the rates of interest – set at 3% but typically adopted at 5% and above by lenders – to reflect the improved economic environment since the rules came about.

“The question I would ask is can we foresee rates over five years being at that level? It feels quite unlikely,” Hill told the FT. “Is this stress rate realistic in the current environment — because it’s locking people out of the market.”

Hill’s remarks echo comments made by Hometrack’s research and insight director Richard Donnell at the Mortgage and Protection Event in November. Donnell told an audience of brokers that first-time buyers with small deposits were being blocked from getting on the housing ladder due to difficulties faced in passing tough stress test requirements.

The Financial Policy Committee, which introduced the affordability tests, remained firm on its stance in November, noting that the stress rate level remained “proportionate”.

Despite the bank rate falling since 2014, the FPC said that “given the long-term nature of mortgage contracts, it would be imprudent to rely too heavily on potentially volatile market-implied measures of future interest rates. In addition, the current calibration of the affordability test strengthens resilience in the face of adverse income and unemployment shocks.”

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