MMR Heads Up #2 Affordability

 So you think that you won't have to worry about affordability after 26th April 2014 ?

Well that's not entirely correct, is it? It is true that under the FCA Handbook, responsibility for a client's affordability will transfer from the intermediary to the lender ( why on earth was it not so from October 2004?)  but that is not the only consideration.

Firstly, there is Treating Customers Fairly (TCF).  Under TCF a firm has to act with the client's best interests in mind  and quite obviously, their ability to afford the repayments on their mortgage is a key consideration in this. For a mortgage to be  recommended, the expectation is that it is affordable and the evidence of this is a meaningful discussion and assessment of the clients financial position both now and in the foreseeable future. For this to have any meaning (and to be able to demonstrate TCF) this would have to be  documented : you know the kind of thing, budget planners; lenders affordability calculations; your own affordability calculations; payslips, p60s; income-fed bank statements and so on.

Then there is the complaints culture. You may have seen the latest complaints figures published by the FCA yesterday. All this good stuff simply creates a culture where complaints  are inevitable. It is only a matter of time before complaints start hitting mortgage brokers about mis-selling of mortgages. At the moment lenders have by far the majority share in this area and of course it will always be so but one area where brokers will surely be exposed is along the lines that : "you sold me a mortgage that I couldn't afford" When this type of complaint comes in, the argument that it is the lender's responsibility simply won't hold up. There are things like "duty of care" and "negligence" to add to the matter of TCF. Evidence of course being crucial to successful responses by firms.

Thirdly, and not necessarily the least issue, is the matter of the Mortgage Credit Directive. Exactly what is meant by the statement that lender's and intermediaries will have  to  assess the consumer's ability to repay, based on information provided by the borrower? 

It has an ominous sort of ring to it and i don't know enough about it right now to be able to comment further - but I will at some point soon.

So in answer to the vexed question of affordability my suggestion is that. notwithstanding the transfer of responsibility to the lender from 26th April next year, affordability is something that should not  and probably will not permit intermediaries to switch off to the issue.