The Mortgage Market Review
Getting a mortgage is no longer as straightforward as it used to be and is increasingly becoming difficult. Add to this, the difficulty of raising a sufficient deposit. Unfortunately, it may become more challenging to get a mortgage from 26 April 2014 when new rules come into effect, commonly known as the Mortgage Market Review or MMR.
Background to the Mortgage Market Review
Partly due to the property boom, in particular 2005 to 2007; and the severe financial consequences faced by some; the Financial Services Authority conducted a full review of the mortgage market as highlighted in its discussion paper of October 2009. In particular, the Financial Services Authority looked at the regulatory framework to ensure that risky and sometimes, irresponsible borrowing of the boom years is a thing of the past and that consumers are better protected.
Shelter fully supports the changes. Interestingly, in Shelter’s Consultation Response it highlights that the “FSA’s own data shows that nearly half of mortgagor households have either no money or a shortfall after living costs and housing costs, a stark statistic which further highlights the extent of our affordability crisis.”
The Mortgage Market Review Implementation
Buy to let is not affected by the Mortgage Market Review and buy to let lending remains unregulated. The Mortgage Market Review only applies to residential mortgages.
Borrowers will need to satisfy lenders of their income. Effectively, an end to self-certified UK residential mortgages which were popular in the boom years. Evidence of income must be provided by all borrowers.
A significant change is a move away from income multiples in assessing how much a borrower can lend to strong affordability checks to check expenditure versus income to see if a borrower can really afford the mortgage applied for.
Any application for an interest only mortgage will also require the lender to delve a bit deeper than simply taking the word of the borrower. Lenders will looks closely at the proposed repayment strategy and its credibility.
With some exceptions, all face to face and telephone mortgage sales must be on an advised basis (in a nutshell, this where the borrower is advised on the best mortgage).
Some lenders have already announced their changes whilst other have already implemented their new stricter lending policies.
The Council of Mortgage Lenders Director General, Paul Smee, states:
“The introduction of MMR regulation will bring the largest change to how the mortgage market works in over a decade. The industry has shown that it is ready, and we anticipate a smooth transition into the new framework. We hope and expect the new rules will provide a robust and stable framework for the long term. We hope that any transition issues can be managed in a way which minimises their impact on the borrower, and the CML is ready to assist the FCA in this task.”
The Council of Mortgage Lenders has been working closely with the Money Advice Service to produce online guides for anyone wanting to apply for a residential mortgage under the new rules.
The Mortgage Market Review is designed to protect consumers. Borrowers should check revised lending criteria that applies from 26 April 2014, be prepared for a longer mortgage application process compared to previously and should be fully prepared to provide evidence of income and expenditure.