Nationwide announced this week that it was adjusting its approach to stress testing on remortgages that do not involve additional borrowing.
The mutual will now apply a stress rate of one per cent above its Standard Mortgage Rate, rather than three per cent.
This means a change from 7.24 per cent currently to 5.24 per cent, with Henry Jordan, director of mortgages at Nationwide, noting that affordability can be a barrier even for applicants with a clean payment history.
Strange approach to buy-to-let borrowers
David Sheppard (pictured), managing director of Perception Finance, said it was welcome that another mainstream lender was looking at ways it could help this market, but suggested the mutual was being vague about just what a difference it would make in practice.
He explained: “When I put that up against Santander who have said they will look at lending up to 5.5 times income in this situation, and have been doing so since June, Nationwide have been more coy in this change.”
Sheppard also said it was surprising that this new approach will not apply if the borrower has any other mortgaged properties, given its active presence in the buy-to-let market through its The Mortgage Works brand.
“That is one aspect of this criteria that I feel needs to be changed as if the borrower can afford their current residential mortgage payment with any other properties that are rented out, that situation is unchanged,” he continued.
It’s about time
Paul Flavin, managing director of mortgages.online, said it was a “constant cause of frustration” for clients with good credit ratings who have never missed a payment to have no option but go for a product transfer or move to the lender’s standard variable rate because a change in circumstances left them unable to pass stringent stress tests.
He continued: “As long as the client has a great credit score, is seen to be efficiently controlling debt ‒ for example, they are not using debt to meet income shortfalls ‒ then why should they not be able to move to any chosen lender on a pound-for-pound basis?”
Flavin argued there should be an “industry agreement” that like-for-like remortgages are assessed at a different level to those looking to move home or capital raise.
He added: “Making this lighter assessment available to those with a proven track record, giving them full access to the open market rather than forcing them down the product transfer route, seems so much fairer.”
Time taken on legals is too long
Jane King, mortgage adviser at Ash Ridge Private Finance, noted that FCA guidance on mortgage prisoners allowed lenders to relax their rules on like-for-like remortgages, and suggested Nationwide was simply rolling this out for everyone.
She said she expected more lenders to follow suit, though noted that some lenders had been somewhat lukewarm in their response to the FCA guidance.
King continued: “The biggest issue I face when doing a switch of lender remortgage is the amount of time it takes to do the legal work. If they could cut this down it would be very useful. Currently I am looking to do a switch of lender remortgage at least eight weeks in advance just to cope with the legals.”
A common sense approach
David Hollingworth, director of L&C, agreed that the regulator’s push to provide help to mortgage prisoners had encouraged lenders to “put some common sense approaches in place” for borrowers switching on a like-for-like basis.
Hollingworth predicted that other lenders will follow Nationwide’s lead given the competition in the market, adding: “It’s not abandoned the need to stressing of payments altogether but by pitching them at a lower level it should help more borrowers reach the affordability requirements.
“That may help some mortgage prisoners although it doesn’t rely on the payment simply being at a reduced level and still applies a stress test. However, this should help more borrowers meet the required affordability test and improve acceptance rates for remortgage borrowers.”