"The declaration of affordability" document

[honest]

Should there be a document called "The declaration of affordability" among the documents that a bank requires when it is assessing someone for a mortgage? Is it legally required to show it looked at the borrowers ability to pay the mortgage or not?

 

[mf1]

Why?

With lending so tight these days, what are the chances of borrowing beyond capacity to repay?

To me, it smacks of seeking to remove personal responsibility for excessive borrowing.

mf

 

[honest]

Why?

With lending so tight these days, what are the chances of borrowing beyond capacity to repay?

I would say these days, or any days in the past, there should be / have been no chance of borrowing beyond capacity to repay. Thats why I ask " Should there be a document called "The declaration of affordability" among the documents that a bank requires when it is assessing someone for a mortgage "?

 

[WorstPigeon]

My mortgage pack has some oblique reference to stress testing (shows what repayments would be with rates up a few percent), if that's the sort of thing you mean? There's no "we declare that this person can definitely afford this" document; realistically, that wouldn't make much sense.

 

[mf1]

"Thats why I ask " Should there be a document called "The declaration of affordability" among the documents that a bank requires when it is assessing someone for a mortgage "?"

Are you saying that the bank should require the borrower to complete this declaration?

Or that the bank should complete it so that when the borrower defaults, the borrower can say but sure you said I could afford it and now I can't so I don't have to repay you?

Mortgages are not rocket science. Every letter of loan offer sets out the amount of the mortgage, the amount that will actually be repaid over the term, the amount of the monthly repayment, at current interest rates, and the monthly repayment if that interest rate goes up.

I don't think the banks should have to do any more.

I do think that many people have more interest in the colour of the carpets and walls of the house than the tedious matter of reading through a letter of loan offer to educate themselves as to what it is they are actually doing!

mf

 

[honest]

Every letter of loan offer sets out the amount of the mortgage, the amount that will actually be repaid over the term, the amount of the monthly repayment, at current interest rates, and the monthly repayment if that interest rate goes up.

Every loan offer should have set out the above but unfortunately not all of them did. That is another matter though, and not the query here.

To get back to my question maybe I should rephrase it. During the boom years, was there ever a document called "The declaration of affordability" among the documents that a bank should have completed when it is assessing someone for a mortgage?

And if there was such a document in most mortgages, was it a declaration by the bank that it had checked to see if the borrower at that point in time could afford the mortgage repayments? I am not even talking about "stress testing" in case interest rates increased a few percent: I mean was there a requirement on the bank to check if the borrower could repay the mortgage repayments (with the existing interest rates at the time, say, and with the not unreasonable assumption they would stay more or less the same) and a document to sign (or box to tick) once they have checked that?
Thank you for your replies.

 

[44brendan]

To get back to my question maybe I should rephrase it. During the boom years, was there ever a document called "The declaration of affordability" among the documents that a bank should have completed when it is assessing someone for a mortgage?

No there wasn't! Standard expectation of loan assessment is and was that all banks would apply a stress repayment test on all loan facilities before approval. It is clear from the banking crisis that these tests were not applied in a significant number of cases.
In terms of law or moral obligation I don't see how a declaration of affordability would make any difference in the current climate. As MFI stated earlier affordability relies on current circumstances such as income/saleability of security/employment status remaining static or improving during the course of a loan. having one completed by a bank would not indemnify a client against loss should he no longer be in a position to pay back his loan.
Adherence to good credit policies and procedures and proper oversight by the CB are standard requirements for all lending institutions. If they fail or are not properly implemented or overseen then the completion of a document will have no impact on potential future losses.

 

[WorstPigeon]

I mean was there a requirement on the bank to check if the borrower could repay the mortgage repayments (with the existing interest rates at the time, say, and with the not unreasonable assumption they would stay more or less the same) and a document to sign (or box to tick) once they have checked that?

There might well be such a document as part of their internal underwriting procedure. Certainly, even during the boom years, banks were interested in affordability. I doubt any such document was issued to the borrower, though.