With a rising number of UK borrowers experiencing some form of debt, Clive Briault, managing director of retail markets at the FSA, admitted considerations other than monthly expenditure needed to be taken into account when assessing client affordability. Speaking at the Council of Mortgage Lenders (CML), lunch on 20 April, Briault said: “Continued house price increases should impact on the affordability of models.
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The high level of non-conforming arrears also raises some questions about the extent to which lenders have taken affordability into account when undertaking this lending. Our rules require lenders and advisers to make an assessment of a borrower’s ability to afford the mortgage, so high default rates should be prompting lenders to review affordability models and to understand the root cause of high arrears.”
James Cotton, mortgage specialist at London & Country, said: “Briault is talking about regular stress tests for credit risk – you’ve got to plan for the worst. He’s being realistic but cautious and encouraging lenders to factor in the potential for a house price drop rather than a rise.”
