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The new affordability tests for existing borrowers proposed on FCA CP19/14 will allow lenders to disapply many aspects of the MMR affordability rules which have restricted the options of some borrowers.  It is proposed that the new simpler rules can be applied to any mortgage customer provided they are not borrowing more money.  Lender product fees do not count as new money, nor will the FPC stress test at a higher revert to rate.

The revised rules will allow a lender or consumer to extend the term of the mortgage to make it more affordable and not apply the old rules, but the consumer should be made aware of the new total cost of borrowing.

Under current market conditions this will work for most consumers on a reversion rate or coming off a long term deal as they will be able to secure a cheaper loan.  In a market where rates are rising, then it may be more difficult and in order to benefit from the reduced affordability tests then they may have to be allowed to revert to their SVR to move lender as the FCA rules already allow product transfers under a version of this approach.

As lenders will have to keep the stricter approach for new or additional borrowing this adds layers of complexity.  Will they keep the existing MMR rules for times of rising rates or flop to the new rules relying on extending term to deliver the results in market share they require.

These changes go to the heart of the market as more lenders look to retain their customers whilst a remortgage for many might still be the best option.  There is much to be debated here.

Robert Sinclair
May 2019

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