Beleaguered mortgage applicants are facing yet another hoop to jump through after it was announced that lenders may be forced to put their IQ to the test as part of stricter affordability checks.
Update midday Friday 1 April: In case you haven't already twigged, this is in fact an April Fools' Day story. Gotcha!
MoneySavingExpert.com understands high-level talks have been taking place over the past year over the controversial concept of assessing borrowers' intellectual savvy, with the Financial Conduct Authority (FCA) likely to give the green light to the plan at midday today when it publishes the results of its latest mortgage lending inquiry.
The idea is to test if both first-time buyers and those looking to remortgage are "intelligent enough" to budget effectively so they can make monthly payments.
It's currently unclear what the pass mark will be set at. But the FCA's initial proposals suggest it could be staggered, with higher-scoring applicants eligible for mortgages with smaller deposits and those with lower IQs asked to stump up more upfront.
April Plein from the Organisation for Mortgage Firms says: "Anything that helps us weed out those who can and can't pay is helpful.
"While this idea does sound somewhat strange, our tests from this time last year show it does make a difference. If people are concerned, practice tests will be made available which they can work on – and the hope is doing the work will help sharpen their thinking."
The move comes amid a backdrop of increasingly stringent mortgage affordability checks, which involve lenders looking at all of your incomings and outgoings to see if you can repay what you borrow, not just at today’s interest rate, but if rates were to rise to 6% or 7%.
New EU rules that came into effect this year have seen lenders further tighten their criteria and some who've tried to remortgage have been left unable to move to a cheaper deal. Also, earlier this week the Bank of England said it wanted to set buy-to-let landlords new affordability tests.
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How will the new IQ tests work?
The FCA says it wants to introduce a mandatory two-part test, as part of its Testing Homebuyers' Intelligence, Competence and Knowledge initiative:
- The first part will be a mental arithmetic aptitude test, requiring applicants to sit a short exam, not unlike a maths GCSE paper. The idea is to test how effective individual borrowers are at managing money.
- The second part of the IQ test will see applicants return to the classroom. In a move many will no doubt see as patronising, the now-largely defunct 11+ exam will be dusted off and applicants asked to take the verbal reasoning part of the test, the idea being to see if borrowers can "conceptualise the magnitude of home ownership".
Current members of Mensa, the body for people with IQs in the top 2%, will be exempted from the tests.
What can I do to prepare?
While it's understood the majority of applicants should have no problem passing the IQ test, some lenders have already agreed to run weekend 'refresher classes' at secondary schools, which are designed to give those that haven't sat an exam in some time the opportunity to revise – though these could have a cost implication.
If the changes due to be announced at lunchtime are confirmed, MoneySavingExpert.com plans to launch free tutorials to help people sharpen up their IQ skills in advance.
'A foolish form of Social Darwinism'
MoneySavingExpert.com founder Martin Lewis says: "We already have the farcical situation whereby people remortgaging without any change to their circumstances are being rejected because they can't 'afford' cheaper rates.
"But to add the idea that there's a correlation between IQ and your ability to manage money is a form of Social Darwinism – it is without doubt completely foolish."