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The Dear CEO letter to second charge lenders made fascinating reading.  Not the minor errors by one lender referred to by some commentators in the lead-up to its publication. The FCA has significant concerns, found poor practices and fears that lenders may not be lending responsibly.

They found disposable income figures in applications which were inconsistent with the amount of unsecured debt the applicant was carrying.  Generally the review of the reality of income and expenditure was not robust and challenge not sufficiently applied.  Also the application of stress testing was inconsistent and not recorded adequately in policies or individual case files.

The affirmation of the income for self-employed applicants also lacked rigour. The FCA expects use of the tax calculation and a tax year overview documents from the HMRC website rather than accountant prepared assurances.  Also where a lender uses ONS or other data to check expenditure it should be applied to assess credibility; be at a current and realistic levels; and not as a substitute for the real situation of the applicant.

In the world of seconds, the broker is more involved in the underwriting and application process as well as completion activity.  Lenders need to ensure they have appropriate controls over this and brokers’ management will need good systems of oversight, checking and monitoring to ensure that applicants get the right outcome.

The whole second charge sector will need to review its practices and ensure it is compliant.  Expect change in the next three months.

Robert Sinclair
March 2018

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