Case Study 4 – a customer moving home

This case study illustrates good and poor practices when assessing affordability for a customer who moves home.

Firms should take particular care with home movers when assessing affordability. Like first-time buyers (see Case Study 2) their current expenditure can be different to their expenditure after the move. For example expenditure is likely to increase when moving to a larger home in preparation for the starting of a family. Income is also likely to be affected if the female partner is currently earning and intends to stop work.

Customer circumstances

Peter and Jane are moving home as they wish to start a family and need a larger property. They are moving from a two bedroom flat to a three bedroom detached house in the same area.

On receiving advice, they were recommended a repayment mortgage as they wished the mortgage to be repaid at the end of the term without the need of an investment vehicle.

Jane is a senior civil servant and the main earner. Peter is a police officer and his income includes irregular overtime which is not guaranteed. Jane is uncertain when, and in what capacity, she will return to work after having children. She is, however, certain she will not return to the civil service.

Good practice

The adviser took all the above circumstances into account to build a detailed budget planner to build up a realistic figure for future expenditure.

The adviser obtained a number of pay slips from Peter, checking his income had not been inflated. In addition, by looking at year to date figures, the adviser was able to work out how much and how regular Peter's overtime was. Having questioned Peter further, the adviser understood that Peter's overtime had in fact been pretty constant for the past few years and was likely to remain that way.

The adviser used 60% of overtime to supplement Peter's basic salary when assessing affordability and had the evidence to prove this was a reasonable proportion to use. The adviser had checked overtime payments were acceptable to the lender.

The firm's policy is to factor in a 'buffer zone' into affordability calculations. The adviser had checked the mortgage was affordable not only at the standard variable rate (SVR) but at SVR plus a margin and they explained and agreed this with Peter and Jane.

The adviser used the key facts illustration as a tool when discussing the mortgage payments and the affordability assessment.

Other points to consider

Firms should also consider the following points:

The realities of moving home – firms should demonstrate they understand moving often means their customers' financial position will change. The customers themselves may not fully appreciate how their position may change.

Firms should adopt an approach that helps customers in this position and have a way of capturing this change so that realistic data is used in the affordability assessment.

Review the current fact find - so you can include more information about customers' future plans. This could include prompts to help advisers make considerations in key areas of affordability. They could then record a breakdown of expenditure and detail a 'before and after' expenditure assessment.

Good and poor practice case studies

Affordability – your one-minute guide
Affordability factsheet