Mortgage Affordability

As you all know affordability is a crucial issue to consider before recommending a mortgage. The FSA is continuing to find that firms do not assess affordability well enough and need to gather more information about customers' outgoings and their general expenditure. To help improve assessments of affordability the FSA have outlined some real examples of good and bad practice found during visits to firms. GOOD PRACTICE Detailed budget planner the firm used this within a fact find, allowing them to identify a disposable income figure. They then discussed the figure with the customer and agreed how much income he could commit towards the mortgage. They documented this figure as the budget figure for the monthly mortgage repayment. Buffer zone policy - the firm added a buffer zone into all affordability calculations to allow for expenditure by the customer on unexpected emergencies. They established the amount of buffer with the customer as part of the fact find after completing a detailed budget planner and reaching a figure for disposable income. The amount is based on the customer's individual circumstances and includes an allowance for potential rate increases. Bank statements to ensure accurate and realistic budget plans, the firm asks for customers' bank statements to record and verify the accuracy of outgoings such as day-to-day expenditure. Typical household bill estimations - where customers cannot provide details of household expenditure or where the figures provided looked unrealistic, the firm uses typical figures for utility bills, council tax and other outgoings for similar sized houses and households to help customers assess their position. Retirement considerations - when the mortgage term runs into retirement the firm requests documentation such as annual pension statements so they have evidence of future potential retirement income and current pension arrangements.

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