Re­view that could slow the mort­gage ap­pli­ca­tion process

Yorkshire Post - Property - - PROPERTY - Franz Muehlthaler

Q: Will the Mort­gage Mar­ket Re­view changes this April make it harder for me to se­cure a mort­gage?

A: The big­gest change to mort­gage reg­u­la­tion in ten years is nearly upon us. As of the April 26, the Mort­gage Mar­ket Re­view (MMR) will come into ef­fect. The Mort­gage Mar­ket Re­view will pro­vide a reg­u­la­tory frame­work and in­tro­duce an af­ford­abil­ity as­sess­ment; where the bor­rower meets the lender’s el­i­gi­bil­ity cri­te­ria, a ban on self-cer­ti­fi­ca­tion and high risk lend­ing, manda­tory in­ter­est rate stress tests, ban on non-ad­vised sales, and a re­quire­ment for all staff sell­ing mort­gages to hold a “rel­e­vant pro­fes­sional qual­i­fi­ca­tion”.

How­ever, what do the pro­posed changes ac­tu­ally mean and how will they im­pact on a lend­ing mar­ket that the Coun­cil of Mort­gage Lenders es­ti­mated was at £177 bil­lion for 2013, up from £143 bil­lion in 2012?

In the wake of these sta­tis­tics, it is com­fort­ing to learn that the FCA (Fi­nan­cial Con­duct Author­ity) is ap­ply­ing cau­tion and ex­er­cis­ing its role to make changes that will in­sist on ex­tra due dili­gence for mort­gage in­ter­me­di­aries and lenders. In essence, mak­ing sure that you as a con­sumer are pro­tected against bor­row­ing money that may be dif­fi­cult to re­pay in the event of rate in­creases.

The FCA states in their pol­icy pa­pers that the MMR re­view will see the lender fully re­spon­si­ble for as­sess­ing whether the cus­tomer can af­ford the loan, and they will have to ver­ify the cus­tomer’s in­come.

Lenders will still be al­lowed to grant in­ter­est-only loans, but only where there is a cred­i­ble strat­egy for re­pay­ing the cap­i­tal. There are tran­si­tional pro­vi­sions in the MMR that al­low lenders to pro­vide a new mort­gage or deal to cus­tomers with ex­ist­ing in­ter­est-only loans who may not meet the new MMR re­quire­ments for the loan.

Crit­i­cally, the im­ple­men­ta­tion of MMR will mean sig­nif­i­cant pos­i­tive changes to the process of sell­ing and buy­ing a mort­gage. Changes will ap­ply to not just bro­kers, but ad­vis­ers and all staff who sell mort­gages.

It will de­mand that mort­gage bro­kers up­date their knowl­edge and un­der­stand­ing of the cri­te­ria and prod­uct de­tails of ev­ery lender they deal with; which is ex­pected to re­sult in a great deal of re-train­ing both of lenders’ in­house ad­vis­ers and of mort­gage bro­kers.

The like­li­hood is it won’t pre­vent you for se­cur­ing a mort­gage but it could make the ap­pli­ca­tion longer.

With the de­mand for more de­tailed in­for­ma­tion, more pro­fes­sion­al­ism and due dili­gence, it goes with­out say­ing the ad­min­is­tra­tion process is likely to take longer, which will have an im­pact on the time it takes to re­ceive a mort­gage of­fer.

When af­ford­abil­ity checks are men­tioned it re­sults in con­sumer trep­i­da­tion as they em­bark on the ap­pli­ca­tion process. How­ever, this is pro­tect­ing the con­sumer. Fi­nan­cial de­ci­sions are hard to make, es­pe­cially when you have a limited un­der­stand­ing of the sub­ject; such as a mort­gage.

It is much bet­ter to be sure the ad­vice you re­ceive is cor­rect. Like­wise it will be just as com­fort­ing to know your mort­gage lender in duty bound to en­sure you can af­ford the loan they of­fer.

So when I men­tion af­ford­abil­ity, it’s just that. The to­tal of your house­hold ex­pen­di­ture and monthly out­go­ings set against your monthly in­come. This will be scru­ti­nised andf it won’t be as re­laxed as once was. Ex­pect to be ques­tioned.

In ad­di­tion there will be “stress test­ing”.

Fa­mil­iarise yourself with this term be­cause it will be com­pul­sory as of April. It is an­other af­ford­abil­ity safe­guard and aims to as­sess how you would cope with a rise in in­ter­est rates. Per­haps it will en­cour­age to as­sess their fi­nances more care­fully.

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