Following the Mortgage https://www.beaconfinancialtraining.co.uk/wp-content/uploads/2020/06/cemap-online-and-classroom-training-uk.jpget Review, which was conducted by the Financial Conduct Authority in April of 2014, the affordability process implemented by lenders has changed considerably.
An increase in regulations was enforced to make sure that lenders continued to lend responsibly, and as a mortgage adviser your role is to ensure that you undertake a full and effective assessment of your customers’ income and expenditure.
What does an affordability calculation look at?
Gone are the days of “three times a single income” and “two and a half times a joint income”. Now, a much more detailed analysis is conducted. As well as looking at the income of the applicant, as a mortgage adviser you also need to establish everything that the applicant pays out each month. Bank statements are reviewed to assess spending habits and even having children is factored into the calculation, which can reduce the amount that will be lent.
The affordability process
The processes and procedures vary slightly between lenders, but will ultimately all have the same goal. This is to decide if the borrower has the ability to maintain their monthly mortgage payments, now and in the future. Having input data regarding income and expenditure, the details will then be run through a credit score system. This checks the applicant credit record with a reference agency external to the lender.
The calculation then determines how much as an applicant your client may be able to borrow. If this is satisfactory to your customer’s needs, you can then start to look at the various products available and what the monthly repayments would be.
Working as a mortgage adviser within the industry, it will be your job to carry out affordability assessments with your clients. There will be some instances when you are not able to lend the amount required by the customers, so you will need to manage their expectations with tact and empathy, and also positively advise them on how to influence the affordability.
For example, you may want to make sure that they:
• Are on the electoral register
• Know the importance of being honest when declaring outgoings
• Review credit card limits and how they can affect the amount lent
• Have recently checked their credit report.
The affordability of a mortgage is a vital part of the interview process, and therefore it’s imperative that it is carried out effectively in the best interests of both applicant and lender.