Ipswich Building Society responds to rise in ‘mortgage misfits’
Help for borrowers isn’t too far away as mortgage market changes kick in
From the 26th of April this year new regulation being introduced to curb the lending excesses of pre 2008 could result instead of credit worthy people finding it harder to get a mortgage or re-mortgage their existing home. The new regulation called the Mortgage Market Review is an initiative led by the Financial Conduct Authority that has imposed new affordability criteria on those who apply for mortgages.
Under the new regulations it could become a lot harder for so-called ‘mortgage misfits’ to obtain a mortgage. This term relates to borrowers who potentially will be let down by a system that in many cases relies on automated assessments based on calculations of the ‘average’ borrower. Types of ‘misfit’ customers include: those earning less than £25,000 per year; small business owners; the self-employed; and those who have different income sources such as pensions, equity in a business or property, rental income and investments.
Ipswich Building Society has declared its support for mortgage misfits living in its heartland area of the East of England and will focus on its manual underwriting process to ensure careful consideration of individual circumstances. The Society will retain its existing methods of verifying income and will use an applicant’s own evidence of spending rather than relying on a computer model to determine what ‘typical’ spending looks like.
Paul Winter, Chief Executive of Ipswich Building Society, says: "It is entirely appropriate that the FCA wishes to introduce regulation to ensure the lending excesses of pre 2008 are not repeated and that irresponsible lending is firmly tackled. However I am concerned that people on average incomes may now find it harder to obtain a mortgage and I believe this may prove to be an unintended consequence of the methods used to implement affordability requirements. Ipswich Building Society has always manually underwritten and carefully reviewed the financial situation of our mortgage applicants. This is confirmed by our lower than industry average arrears levels. Previously acceptable borrowers may now struggle to pass the new affordability test if relying completely on computer data to prove expenditure. Whilst we cannot change the new affordability model, we will offer borrowers the option to provide their own expenditure evidence rather than relying on a computer model. We hope this will help more people to obtain a home of their own."
Current data shows that a family of two adults and two children wishing to purchase a property for £125,000, with a household income of £30,000 and with a 10% deposit, would not meet the requirements of affordability using expenditure data from a computer model. Analysis comparing the computer model expenditure data to that of ‘real’ applicants’ evidence of expenditure has shown that using the latter would pass the affordability test.
Paul Winter adds: "The Government needs to address housing supply issues rather than potentially limiting those on average incomes from obtaining a mortgage. Many aspirational home owners are facing a double lock: unavailable lending and a lack of homes to choose from."
In light of MMR anyone looking to borrow will need to consider lifestyle changes well ahead of taking a mortgage, not only saving for a deposit but checking their levels of credit, reducing any debts and reducing general spending habits. Top tips include: checking your credit files on a regular basis to ensure there’s nothing unpaid logged or that no fraudulent activity is present; ensuring old bank cards are closed; all accounts in your name are registered to the same address and that you put a landline on applications to demonstrate stability; and ensuring you are registered on the electoral role.
Ipswich Building Society has launched an affordability calculator at www.ibs.co.uk/intermediaries/affordability-calculator
About Ipswich Building Society:
Ipswich Building Society has approximately 65,000 members and currently has over 80,000 savings accounts and over 5,000 mortgage accounts. There are nine branches across Suffolk in Aldeburgh, Saxmundham, Halesworth, Woodbridge, Tower Ramparts Ipswich, Ravenswood Ipswich, Hadleigh, Haverhill and Sudbury. The Society also has 7 agencies in Suffolk and 1 in Norfolk. Ipswich Building Society accounts are currently postcode restricted but can be opened and operated by post or by calling 0845 230 8686.
80% of the Society’s members live in the East of England with the remainder living across the UK. Ipswich Building Society was established in 1849.
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For more information please contact:
Ben Craig or Natasha Vickers,
020 7269 7135 or 020 7269 7271