Are you prepared for the MMR?

Monday, 7th April, 2014

I’m probably correct in thinking that most of you will associate MMR with a widely debated vaccine.

However given the impact that the Mortgage Market Review (also known as MMR) will undoubtedly have on homeowners looking to secure a mortgage, I would urge all those who are about to arrange a mortgage to understand what the new regulation entails and how it could affect their mortgage application.

The MMR is a set of regulatory rules that will come into effect from 26 April 2014, which directly impact on UK mortgage lenders and intermediaries (such as the team here at Complete Mortgages).

The new regulations have been put in place by the Financial Conduct Authority to prevent risky lending, avert another major meltdown in the financial services sector and nip any potential housing bubble in the bud before it becomes a cause for concern.

This means that there will now be greater expectations placed on lenders and intermediaries when it comes to checking the credentials of those applying for a mortgage.

So, rather than using the traditional core values such as salary and outstanding loans to determine the borrowing limits of an applicant, we will now have to delve deeper into areas such as the cost of childcare, commuting to and from work, heating and electricity costs and even monthly outgoings attributed to eating out and socialising.

In the short-term it means that applicants may be disappointed to learn that they aren’t able to borrow as much as they thought they could. Ultimately, this means that in the long-term applicants will be in a safer position and more equipped to deal with a rise in interest rates as and when this happens and other external factors that could make mortgage repayments difficult in the future.

However as you can imagine, an almost forensic approach to applicants’ spending habits means that by going to the bank to arrange a mortgage, the entire process is going to take much longer than what the industry – and the customer – is used to. There is already a growing fear that the typical one-hour meeting at the bank could become three and a half hours long. As a result, customer waiting times are also expected to rise so dramatically that there is concern that by the time the mortgage is secured, applicants could have missed out on the property that the deal was required for.

As independent mortgage advisers our expertise lies in navigating our clients through the mortgage application process and making securing a mortgage as easy and affordable as possible.

Now more than ever our advice to everyone looking for a mortgage, from first time buyers through to seasoned homeowners, is to find a mortgage broker that you trust and one that takes a whole-of-market approach to what, for the majority of people, can often be a daunting process. As highlighted, the hurdles that the MMR now imposes to the banks’ in-branch advisers means that using a mortgage broker and the skills and contacts they will have developed will significantly expedite the application process.

If you would like advice on how the MMR could impact you or if you are looking to arrange a mortgage, simply get in touch with the Complete Mortgages team on 01483 238280 or email to arrange a free mortgage consultation.

Mortgage Market Review 2012 – all you need to know

Thursday, 25th October, 2012

The Financial Services Authority has published new rules as part of the Mortgage Market Review, which promises to put “common sense at the heart of the mortgage market” to prevent future affordability issues.

Martin Wheatley, managing director of the FSA, said the rules will help to create a more sustainable market that works for both the borrower and the lender.

He said: “We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common-sense principles are hard-wired into the system to protect borrowers.

“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated. At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want.”

The majority of proposals published in December 2011 are unchanged. Therefore, for all mortgages, lenders will need to consider a borrower’s net income, and committed and basic essential expenditure.

Interest-only mortgages can be offered to anybody who shows they have a credible repayment strategy – but relying on rising house prices will not be enough.

All mortgages lenders will also have to take into account the impact that future interest rate rises may have on mortgage repayment costs.

For all but the most straightforward transactions most customers who are sold a mortgage on an interactive basis, i.e. face to face or over the phone, will need to be advised, meaning that they will only be recommended a mortgage that is suitable for their circumstances.

The process will be more straightforward for mortgage professionals, high net worth individuals and business customers who can opt out of receiving advice.

In light of feedback received during the consultation, the FSA has re-thought its approach on a number of areas. The main changes to the MMR are therefore as follows:

  • Transitional rules (affecting borrowers sometimes referred to as ‘mortgage prisoners’) – enabling lenders to make exceptions to the responsible lending rules for customers who need to remortgage, providing there is no increase in the outstanding amount to be repaid.
  • Advised sales – clarifying that while most sales will have to be advised, advice will not be needed for simple contract variations – providing there is no increase in the amount to be repaid.
  • High net worth borrowers, and business customers borrowing against their home – confirming that these types of customers require a tailored approach. This will allow opting out of receiving advice and involve a less stringent affordability check because of their different characteristics and circumstances as compared with most other borrowers.

The effects of the new rules on different types of borrower are as follows:

  • All customers – all customers will need to satisfy lenders that they can afford the mortgage, and provide evidence of their income. Most mortgage sales will require advice, particularly interactive sales (such as face-to-face or telephone sales). The new rules do not prevent higher loan-to-value lending, and interest-only will be allowed if the borrower can show that they have a credible repayment strategy.
  • First time buyers – the new rules do not prevent higher loan to value mortgages being offered.
  • Existing borrowers that cannot meet the new affordability requirements – lenders can ‘switch off’ the affordability and interest-only requirements for existing borrowers who want to get a new mortgage for the same amount or less, providing they have a good repayment history. While any lending decision is a commercial one, lenders will also be able to use these arrangements to take on the customers of other lenders. Lenders will, with immediate effect, be prevented from treating these customers less favourably than other customers.
  • Older consumers – the new rules do not apply any age limits or prevent lending to older consumers, including beyond retirement.
  • Self-employed – the new rules give lenders flexibility to decide what type of evidence of income to accept from self-employed customers.
  • Entrepreneurs (i.e. business people borrowing against their homes) – a flexible approach applies and these borrowers will be able to secure a mortgage on an execution-only basis providing they confirm they are happy to ‘opt out’ of the suitability tests. Lenders must see a credible business plan before providing a mortgage.
  • Right-to-buy – customers who are exercising their right-to-buy will always be required to get mortgage advice.
  • Shared equity – customers who are also getting a second charge shared equity loan to assist in their property purchase will need to be able to afford the payments on the shared equity loan as well as their mortgage.
  • Credit-impaired borrowers – the rules do not prevent customers with an impaired credit history from getting a mortgage, as long as they can afford it. Where they are consolidating debt they must get advice.
  • High net worth customers – a flexible approach applies and these borrowers will be able to secure a mortgage on an execution-only basis providing they confirm they are happy to ‘opt out’ of the suitability tests.

Wheatley said the measures had been discussed at length with consumers, firms, parliamentarians and other stakeholders to guarantee their effectiveness and practicality.

And he added: “I am therefore very confident that we have come up with a set of rules that are proportionate and sensible and will create a more sustainable mortgage market where consumers are put at the heart of every decision.”

All rules, except one pertaining to mortgage prisoners which will be put in motion immediately, will come into force on 26 April 2014.

Separate to these changes, the FSA is carrying out an analysis of existing interest-only borrowers to see how many may be unable to repay the capital and understand what steps lenders are taking to address this issue.

The FSA expects to publish the findings of this piece of work in the first quarter of 2013.

Many of these new rules have already come into effect and here at Complete Mortgages we provide a full, whole of market, advice service.  Please call on on 01483 233014 for a consultation.