Mortgage Strategy has published a story today revealing that the FCA has criticised poor affordability checks in the second charge market, and details the industry’s failings in a “dear CEO” open letter to all second charge lender executives.
Sam Barker of Mortgage Strategy reports the regulator saying that in its recent second charge lending review it has found examples of firms breaking MCOB rules by “not basing lending decisions on income and expenditure assessments”, adding that some firms’ shaky income and expenditure assessments have led to customers with poor credit profiles being given second charge loans.
The regulator was particularly concerned about income assessments for the self-employed where “in some cases, we were unable to identify where an underwriter had obtained the figures used for net income.” And the open letter goes on to say: “We also found evidence that lenders were not always taking account of tax and national insurance deductions and were relying on calculations contained within accountants’ certificates and other documents that did not appear to be plausible or realistic”.
Mortgage Strategy reports that “the regulator has asked second charge lenders to review their processes and confirm they are lending responsibly by 1 May”.
Will That Be A Headache For Them?
It could be, but it definitely doesn’t have to be.
Castlight Financial’s Affordability Passport is out there, being used by more and more brokers and broker networks to ensure that not one single one of the issues raised in the FCA’s open letter to CEOs would ever happen to a broker using our affordability resource.
The way our Affordability Passport works is simple. Any customer requiring a first or second mortgage would simply share their transactional data with their broker, using secure open banking technology. Their income and expenditure would be processed through a powerful categorisation tool, detailing all areas of expenditure from tax and national insurance to gym membership and the transactional data summary is then merged with the customer’s credit report. Within 10 minutes, the broker has a comprehensive affordability check right there on the screen. No need for bank statements, no need for accountants’ certificates, no need for any further compliance work. No need to worry that the FCA would find their affordability check lacking.
My suggestion? Between now and 1 May, if second charge lenders want to demonstrate to the FCA that they are lending responsibly – check out Castlight Financial’s Affordability Passport.