IFAonline has received a massive reponse to a recent poll on mortgage affordability with the vast majority saying it is difficult to assess a client's outgoings.
The poll came in reponse to the FSA’s warning on 5 August that affordability is not being properly taken into consideration when recommending mortgages.
The regulator says this is mainly because advisers have not obtained sufficient information regarding their clients’ regular outgoings and other expenditure.
However, when asked how easy it was to accurately assess a client’s outgoings, 86.8% of respondents to our poll said it was ‘somewhat difficult’ or ‘very difficult’.
Adviser Graham Tetley says even thorough checks of a client’s income and outgoings do not result in 100% disclosure of debts.
“The advisers in my firm use a comprehensive budget planner and I have drummed it into them to get client bank statements to check any info given. But still we get lenders declining cases due to undisclosed credit.”
Tetley also says some clients will inevitably lie to get a loan that they might not be able to realistically afford.
“For whatever reason, and regardless of how many times you tell them about full disclosure, clients are sometimes reluctant to disclose everything,” he says.
“For this reason the FSA should recognise that borrowers have personal responsibility and that the adviser can only dig so far.”
Phil Castle from Financial Escape agrees, and says he takes the precaution of ensuring clients fully understand the consequences of lying to their adviser.
“When clients want something, they are not always forthcoming with information, that is why we record my explanation of our Terms of Business including explaining non-disclosure in relation to borrowing is potential mortgage fraud.”
He says steps like this are important for advisers to ensure they are protected from possible FSA enforcement action over non-disclosure by clients.
Adviser Colin Stratton says he likes to take time to calculate a client’s budget and encourages clients to use a mortgage calculator at home to reflect upon their application.
“I discuss affordability at length and as a big part of the discussion point to our website and its mortgage calculator. I show clients how to use it so that they can sit at home and really work out what they can afford to commit to a mortgage payment, and also what the affordable cost will indicate as a maximum mortgage,” he says.
“This is not possibly what the FSA have in mind, but in speaking to various lenders about the ‘quality’ of our introduced business they have confirmed extremely good persistency rates and no apparent problems.”
With the FSA’s current crackdown on mortgage fraud and other problems in the mortgage sector, advisers may need to exercise caution when assessing client affordability, particularly with repossessions and arrears on the rise.
However, it seems impossible for advisers to be 100% sure of what a client can afford, and the regulator may need to accept that borrowers have an equal responsibility to be honest with their adviser.
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