Independent review and analysis

Higher Income Multiples – Back to the “Noughties”?

In the ever-evolving financial services market, changes announced by the Prudential Regulation Authority could herald a change of strategy for some of the more traditional mortgage lenders. With capital adequacy requirements due to become slightly less onerous for smaller banks and building societies, rule changes could make it easier for borrowers to obtain mortgages on higher income multiples than currently apply.

Additionally, several Building Societies are considering moves into regulated and unregulated bridging loans and interest-only mortgages. This is unchartered territory for some and undoubtedly a boost for the consumer with more products becoming available. This should also present smaller lenders with the opportunity to assess their corporate strategy and ensure that the existing models do not become outdated. The smaller the lender, the more getting it wrong could have significant, adverse effects on a balance sheet.

On the surface, this all seems positive news. If however we learn from the past, then a lender introducing new products will need to understand them fully, not just by carrying out proper risk assessment in advance of launch, but also importantly ensuring that underwriters fully understand them too.

Rockstead has a pool of experienced underwriters available on a contract or temporary basis to work on projects or to assist lenders when they embark on new lending strategies. Innovation and progress is to be applauded but seeking help to mitigate risk is essential.

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