As I near the end of my third week of isolation, I thought it best to write a compliance update; consider it my way of letting you all know that I’m still around!
This time, I thought I would reference the ever changing face of lender criteria.
First though, a positive thought
From conversations this week, we are hearing that lenders are realistically considering expanding product criteria and range in an attempt to move the property market back to somewhere ‘near normal’.
Here are some of the good things we are hearing:
- Increases in product loan to value ratios look likely to return over the next couple of weeks;
- Desktop valuations are already being used more broadly by some lenders;
- Law firms are working on a more seamless ‘remote’ conveyancing process;
- Lenders are prepared to lend to furloughed employees.
It is that last point that I really wanted to pick up on.
As you will no doubt be aware, furloughed employees may be subject to a change in income.
If you have already submitted an application for someone who is subsequently ‘furloughed’, what are your responsibilities?
To assist me with my answer, I am going to draw on the updated version of MCOB 11.6 – Responsible Lending and Financing.
The observant amongst you will notice that large parts of this section were updated following the Mortgage Credit Directive (MCD – March 2016); and those with a keen memory will recall that one of the drivers for MCD was an improved approach to lending practices.
Anyway, enough of the history lesson. MCOB 11.6 explains that before entering into a regulated mortgage contract, a firm must assess the borrower’s ability to repay the sums due.
MCOB 11.6 goes further to explain that future material changes must be considered as to how they will impact the borrower’s ability to repay sums when due.
In the case of a change in income post submission to the lender, it is the responsibility of the adviser, should a change become known to them, to disclose it to the lender, thus enabling them to re-run the affordability calculator and assess the customer’s ability to repay again.
So in short then, if you become aware of one of your customers being furloughed and it alters the customer’s income, please notify the lender.
By the way, this isn’t the “business prevention unit” dictating matters again; we are informed that lenders are now going to monitor these changes and report on it. Further, it could have an impact on your customers which could reflect negatively on you and your advice.
Please ensure that you continue to accurately disclose income and expenditure to lenders, even if it should change after submission.
Oh well, I can hear the sound of Mario Kart coming from the lounge…time to go.
