Review that could slow the mortgage application process
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.