The specialist non-conforming lender has developed a declaration that provides borrowers with information about the likely impact of changing interest rates on their mortgage payments, as well as the affect of additional financial commitments such as new loans or credit card debts.
Mortgages plc says the affordability declaration is a ‘reality check’ for self-cert borrowers who must confirm that they can meet their monthly payments and fully understand the consequences of changes to the interest rate.
Mortgages plc is testing the declaration as a potential solution to issues raised by the FSA in CP186 questioning the suitability of traditional self-cert mortgages for employed borrowers. The FSA says lenders must fully assess a borrower’s ability to repay a mortgage before granting a loan.
Mortgages plc, the only organisation so far to directly address the concerns raised in CP186, has provided the FSA with full details of its affordability declaration initiative and will keep the body informed of the progress of the trial.
Peter Beaumont, Sales and Marketing Director, Mortgages plc, said: "Borrowers are best placed to know if they can afford their mortgage, but they need to be aware of the impact interest rate changes and further financial commitments have on their monthly payments.
"The declaration not only helps customers understand the financial commitment they are making, it also shows that increases to interest rates will make their monthly payments higher. Borrowers need to be sure that they can afford their mortgage, not just for today, but also for the future."
Mortgages plc says the affordability declaration is vital in developing self-certification mortgage sector, which is invaluable and often the only solution for many borrowers
Peter Beaumont adds: "Self-certification was developed to address the shortcomings of income multiples for assessing affordability, but as it does not take into account all the borrower’s financial commitments, there are concerns that it is not suitable for every customer.
"The solution to these concerns is not to ban the product, but to look at how it can be developed for the future. Mortgages plc has come up with one potential solution and will be monitoring its performance carefully during the coming months. We encourage other organisations to consider alternative options and share their thinking with the FSA."
