FCA Mortgage Stress Tests to be Eased

Following the credit crunch crisis in 2008/9 and the resulting Mortgage Market Review (MMR) that went live in 2014, the financial regulator, the Financial Conduct Authority (FCA) changed the mortgage advice market and required both mortgage lenders and mortgage advisers not only to consider mortgage affordability today for borrowers but also introduces a stress test on mortgage affordability in that borrowers must be tested to see if they can still afford the mortgage if interest rates increased by 3% and that you would be able to still afford the mortgage for 5 years.

We have since been through the pandemic, high inflation and higher interest rates with support and then reduced support has pushed the mortgage market up, down and sideways.

The FCA suggests that it is time to improve access to mortgages particularly in the younger and first time buyer sector.

The FCA is lookinmg for feedback on:

• Create a central stress test rather than lenders setting their own stress tests and creating market imbalances.
• Do not use a 5 year fixed rate stress test of +3% (over current rate).
• Rmove minimal stress test margins of 1% and set a central stress test margin (meaning lenders are not tied to having minimal margins).
• Consider forcing lenders to consider previous rent payments in affordability tests.

Comment

Some of the proposals are good.  We are not keen lenders having more room for manouver on lending given the toxic debt issues on the ‘noughties’ but we are happy to see past rent payments being considered for affodbility.  It is crazy to think that a borrower may have been paying £1,000 pm in rent for the last two years having never missed a payment but then gets turned down for a mortgage costing £900pm because you fail the lender’s criteria.