Cherry Mortgage & Finance Ltd

A Message from Lord Pickles and Lord Blunkett, followed by Cherry Mortgage & Finance Ltd's best practice article

The ability to listen and learn from one another has always been vital in parliament, in business and in most aspects of daily life. But at this particular moment in time, as national and global events continue to reiterate, it is uncommonly crucial that we forge new channels of communication and reinforce existing ones. The following article from Cherry Mortgage & Finance Ltd is an attempt to do just that. We would welcome your thoughts on this or any other Parliamentary Review article.

Blunkett signature Rt Hon The Lord David Blunkett
Pickles signature Rt Hon The Lord Eric Pickles

Highlighting best practice
Matthew Fleming-Duffy,
Ten years on from the credit crunch, and we must ask
ourselves whether or not we’re in a better place financially.
Globally, the financial system imploded on itself in 2007/08,
and many financial institutions were forced to close or seek
significant restructuring. Tougher mortgage regulation was long
overdue, but it does feel somehow as though this might have
gone too far. When it comes to the future, Matthew Fleming-
Duffy believes that here, in the UK, we have the creativity and
composure to embrace a raft of innovative solutions that will
facilitate the emergence of a free-flowing mortgage credit
market, and discusses Cherry Mortgage & Finance’s role therein.
As a small firm, we frequently find ourselves completely at the mercy of market
whims, consumer expectations and regulatory change. We have tried to upsize,
ended up downsizing and have had to personally take significant pay cuts to stay
in business. The cost of regulation, administration and general day-to-day business
expenses have had a significant impact on how we trade in the current mortgage
A changed marketplace
The Mortgage Market Review, which was brought about by the Financial Conduct
Authority in 2014, the Mortgage Credit Directive, a set of EU regulations imposed
on the market in 2016, and the recommended underwriting standards for buy-to-
let mortgages issued by the Prudential Regulation Authority in 2017 have sought to
dampen the marketplace in order to prevent a future financial crisis.
As an aside, the MCD now plays into the hands of some of our European neighbours
– you will find German banks very reluctant to lend to you if you are paid in sterling;
they will cite MCD foreign currency rules as being the problem, while having no issue
if you were paid in US dollars, Hong Kong dollars or Swiss francs. While these sets of
rules, in principle, have brought about a positive adjustment to our relationship with
mortgage lending, I believe that some of these rules are outdated, out of touch and
are in significant need of an overhaul.
While the big five banks provide an essential supply of low-cost mortgages, they can
distort a consumer’s expectations when their circumstances don’t quite fit the mould.
I believe there are seven “mortgage sins”
that can present significant problems if you
are trying to borrow money, which can be seen in this article.
Affordability model concerns
I guess my biggest issue is with the way affordability models currently work. When I
started working in the mortgage industry, some 25 years ago, the income multiple
used by most lenders was three and a half times your annual salary. Following
»Director: Matthew Fleming-
»Founded in 2012
»Based in Bournemouth, Dorset
»No. of employees: 6
»Services: Small, specialist
independent mortgage
»Over £28 million mortgage
applications processed in the
last 12 months
Cherry Mortgage &
Finance Ltd
intervention from the Bank of England,
in 2014, the limit most lenders seem
to have adopted on income multiples
is four and a half times your annual
salary – representing an increase of
28 per cent. Using house price data
from Nationwide Building Society,
the average house price in the first
quarter of 1993 was £50,218, whereas
in the first quarter of 2018 it stands
at £211,792 – an increase of over
Something is wrong. Mortgage
lenders, quite rightly, request far more
information to assess a mortgage
application these days; their lending
practices, however, are heavily
restricted based on these figures. I am
not suggesting, in any way, that we
revert to a form of self-declaration
of affordability – a mortgage is, for
most consumers, the largest loan they
will every take. Many consumers feel
inclined to overstate their financial
position to obtain the result they
want; I read, with a profound sense
of irony, that Lynda Blackwell, the
ex-FCA mortgage sector manager,
recently complained on Radio 4 that
she was refused a mortgage due to
lack of income evidence. Her own
paper on responsible lending, produced
in 2010, effectively banned self-
certification mortgages where income is
It is also worth noting that the rules
issued by the Bank of England allowed
lenders to provide mortgages based on
higher multiples of income for up to 15
per cent of their new loans, many of
which appear to be exclusively reserved
for high net worth individuals.
What’s the solution?
So how should we assess affordability?
In my opinion, some lenders could
take more time to understand a
client’s personal circumstances and
requirements, perhaps taking their
current ability to pay rent and other
lifestyle costs into consideration.
Old-fashioned, manual underwriting
standards are upheld by many of the
smaller building societies, and this is
what is needed to allow better access
to mortgage funding. Access to larger
mortgage loans allows aspirational
consumers to purchase often first or
larger homes, provides confidence to
builders that they will be able to sell
new homes once they are built and
would generally seek to rebalance the
access to property finance. I want a
world that works for everyone, and
this would be a small step towards
achieving that.
I know that this may appear deeply
unfashionable. Many lenders,
particularly new companies on the
mortgage scene, have adopted the
adverse-credit risk-pricing matrix and
appear to be in a race to the bottom
with regard to mortgage deal pricing
for individuals with a poor track
record of paying debts. Innovative
lending practices have been stifled
by the affordability conundrum, and
we must look harder for an effective,
How, then, do we manage the
assessment of mortgage affordability,
process applications efficiently and
temper the sometimes-rampant growth
in property prices? In essence, relaxing
the regulatory approach to affordability
and allowing lenders more freedom
to choose how they conduct these
assessments should go hand in hand
with more automated processing
techniques, such as the adoption of
open-banking technologies, which
appear to be slow on the uptake, and a
new licensing regime for estate agents.
Establishing closer formal links between
agents and surveyors, while ensuring
all agency staff are adequately trained
and holding them accountable for
bad practice, can only seek to stabilise
and restore confidence in our property
market. Regulating property advisors
works effectively in New Zealand, and
we could adopt similar practices here in
the UK.
A strategy for future
stability of home
My biggest
issue is with
the way
currently work
»Proving affordability
»Interest-only lending
»Complex income, including
self-employed applicants
»Older borrowers
»Unusual properties (such
as houses with an annexe
or apartments in high-rise
»Buy-to-let (particularly if you
are a first time-buyer or have
four or more mortgaged
»Adverse credit

This article was sponsored by Cherry Mortgage & Finance Ltd. The Parliamentary Review is wholly funded by the representatives who write for it. The publication in which this article originally appeared contained the following foreword from Rt Hon Kwasi Kwarteng.

Rt Hon Kwasi Kwarteng's Foreword For The Parliamentary Review

By Rt Hon Kwasi Kwarteng

This year’s Parliamentary Review reflects on a tumultuous and extraordinary year, globally and nationally. As well as being an MP, I am a keen student of history, and I am conscious that 2020 would mark the end of an era. It will be remembered as the year in which we concluded Brexit negotiations and finally left the European Union. Above all, it will be remembered as the year of Covid-19.

In our fight against the pandemic, I am delighted that our vaccination programme is beginning to turn the tide – and I pay tribute to the British businesses, scientists and all those who have helped us to achieve this. But the virus has dealt enormous damage, and we now have a duty to rebuild our economy.

We must ensure that businesses are protected. We have made more than £350 billion available to that end, with grants, business rates relief and our furlough scheme supporting more than 11 million people and jobs in every corner of the country, maintaining livelihoods while easing the pressure on employers. The next step is to work with business to build back better and greener, putting the net zero carbon challenge at the heart of our recovery. This is a complex undertaking, but one which I hope will be recognised as a once in a lifetime opportunity.

Through the prime minister’s ten point plan for a green industrial revolution, we can level up every region of the UK, supporting 250,000 green jobs while we accelerate our progress towards net zero carbon emissions.

With our commitment to raise R&D spending to 2.4% of GDP and the creation of the Advanced Research & Invention Agency, we are empowering our fantastic researchers to take on groundbreaking research, delivering funding with flexibility and speed. With this approach, innovators will be able to work with our traditional industrial heartlands to explore new technologies, and design and manufacture the products on which the future will be built – ready for export around the globe.

And I believe trade will flourish. We are a leading nation in the fight against climate change. As the host of COP26 this year, we have an incredible opportunity to market our low-carbon products and expertise. Our departure from the EU gives us the chance to be a champion of truly global free trade; we have already signed trade deals with more than 60 countries around the world.

As we turn the page and leave 2020 behind, I am excited about the new chapter which Britain is now writing for itself, and for the opportunities which lie ahead of us.
Rt Hon Kwasi Kwarteng
Secretary of State for Business, Energy and Industrial Strategy