The Intermediary – June 2025 - Flipbook - Page 8
RESIDENTIAL
Opinion
Loosening of credit
criteria brings
data to the fore
S
ince the Bank of England
began to raise the base
rate in December 2021, the
remortgage market has
been at a disadvantage to
product transfers. Higher
monthly repayments as mortgage
rates jumped from sub-2% to over 5%
coincided with inflation topping 10%,
a cost-of-living crisis and sky-high
energy bills.
However, over the past 10 months,
the base rate has been coming back
down. This has already prompted
much speculation about whether
we could see a spike in remortgage
activity, with customers more likely
to switch lender to benefit from one
of the highly competitive rates on the
market at the moment.
There is a potential challenge in
the way of this, in the Financial
Conduct Authority’s (FCA) view – as
its Mortgage Rule Review (MRR)
consultation paper published in May
shows. Out of 1.6 million borrowers
who remortgaged in 2024, some 83%
stayed with their existing lender
and 17% remortgaged to a different
provider – broadly consistent since
the regulator began collecting data on
product transfers in 2021.
The likelihood is that remortgage
volumes should climb this year, but
growth is also likely to be hampered by
the need for borrowers to go through
a full affordability underwrite if they
are to switch lenders. The question
of convenience is an important one,
particularly in an environment where
rates are coming back down.
The MRR proposes to address this
by simplifying the affordability rules
for a like-for-like remortgage – even
where the borrower is switching
lender. Its reasoning relies, in part, on
the growing role that data plays in risk
assessment within lenders.
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The Intermediary | June 2025
The FCA paper says: “There is
significant momentum to digitise the
home-buying process, speeding up
conveyancing and HM Land Registry
processes. Alongside existing, swi
tools – such as automated valuations,
credit file and HM Revenue and
Customs checks – and potential
efficiency and innovation that can be
delivered through Open Banking, we
want to explore options to streamline
affordability testing requirements
where the customer is remortgaging to
a cheaper deal on similar terms.”
Yet it goes on to highlight the
existing Modified Affordability
Assessment (MAA) rules, which give
lenders the flexibility to carry out a
modified affordability assessment
where the consumer has a current
mortgage, is up to date with payments,
does not want to borrow more, and is
looking to switch to a new mortgage
deal on their current property.
Some further stipulations apply, but
they are perhaps not as onerous for
lenders as one specific consideration
which has hampered uptake. The
FCA’s regulatory data indicates that “to
date this option has not been widely
adopted, supporting approximately
2,655 transactions.”
The proposal is to amend the MAA
to permit lenders to enter into a new
mortgage contract where it is more
affordable than either a customer’s
current mortgage, or a new mortgage
product that is available to that
customer from their current lender.
The FCA paper says: “As with the
current MAA, this would be optional
for lenders to use and depend on their
risk appetite. However, we believe
widening the scope of when a firm
can use the MAA could increase the
commerciality of this option and the
number of customers who could get a
beer deal by changing lenders.”
STEVE GOODALL
is managing director at e.surv
This may alleviate some of the
challenges, but it does not deal with
the capital risk assessment – and that
is the consideration I’m referring to.
Looking ahead
If the FCA’s proposals go ahead,
we must consider what a swier
remortgage market looks like and
how it interacts with understanding
collateral – assuming previous credit
underwriting of individuals suffices.
We must be sure that our automated
valuations evolve to deliver decisions
based on all the data points that can
impact value over a given period.
There are structural risks which
homeowners may choose not to
disclose under a product switch:
cracks in walls may suggest subsidence
or structural movement, for example.
Climate risk associated with
flooding or drought – leading to the
potential for subsidence – could shi
significantly over a decade.
Energy efficiency, regulatory
compliance with net zero rules due
to come into play for residential
homeowners – how do these things
affect the capital risk siing on
lenders’ balance sheets? Not to
mention structural alterations,
extensions or unauthorised building
works that could make a property
unmortgageable.
The potential loosening of credit
criteria brings the role of property data
to the fore. Many lenders will require
a robust mix of digital data sources
and ongoing physical inspections to
maintain an accurate view of risk
exposure and, therefore, appetite to
take on new loans. ●
