80% back second charge lenders’ affordability checks
12October 2016

Second charge lenders are factoring in interest rate rises when assessing a loans’ affordability.

According to the latest online poll from Loan Talk, 80% of respondents feel second charge lenders are doing enough to factor in interest rate changes when assessing affordability.

Other lending products have been in the news recently regarding the issue of affordability.

The Prudential Regulation Authority has introduced new buy-to-let underwriting standards with more affordability assessments.

The Financial Conduct Authority (FCA), meanwhile, has been urged to tighten responsible lending guidance within the payday lending sector following a £34m redress.

Paul Stringer, director of loans and mortgages at Norton Broker Services, agreed with the poll, but said the industry must remain wary of rate rises.

“Even though interest rate increases may be a long way off, it is still important to ensure customers can afford the mortgage should rates rise over the next five years.

“Affordability for many customers would be stretched if rates rose and lenders hadn’t factored in a buffer to cover any rises.”

Tony Marshall, managing director of Equifinance, added: "I agree with the outcome of the poll, however, the concern is that 20% of [respondents] believe that second charge lenders are not factoring in interest rate changes into their affordability models, but it would be interesting to understand why respondents believe this?”

Rob Derry, managing director of Brunel Mortgages and Loans, also felt lenders were doing enough, but felt the question was rather than an interest rate rise, could rates go lower?

“It may start to frustrate customers that they see rates coming down and stagnating when they see their pay rate and first mortgage rate being stressed by 3%, rendering a loan unaffordable.”

Tony concluded by saying that at second charge lender Equifinance, it took affordability very seriously and was aware of the potential negative consumer and regulatory outcomes if it got things wrong.

“The FCA rules and guidelines are clear and specific in this area.

“If a lender falls short, the consequences and penalties are severe, which can include any action from redress of all interest charged from day one through to unenforceability.

“If the problem is found to be systemic, then the reprimands available to the industry regulator are extremely harsh."

RT @EquifinanceUK: We consider your clients even if they have irregular income, are #self-employed or are contract workers. Keeping #second