Responsible Lending and Affordability
The affordability regime introduced by the Mortgage Market Review and the Mortgage Credit Directive: verified income, interest-rate stress testing, the rules on interest-only lending, and the meaning of the APRC.
MMR, MCD and affordability
The Mortgage Market Review (in force April 2014) made the lender responsible for assessing affordability, requiring income to be verified and effectively ending self-certification. Under MCOB 11 the lender must apply an interest-rate stress test, checking that repayments would remain affordable if rates rose in the early years. Interest-only mortgages are permitted only where there is a credible, clearly understood strategy to repay the capital. The Mortgage Credit Directive (2016) brought second-charge mortgages within MCOB, created the consumer buy-to-let regime, and introduced the APRC, which expresses the total cost of the mortgage as a yearly percentage.