MMR – Lenders urged not to over react

Mortgage Market Review or MMR is here and it remains to be seen how it affects the property market, particularly values and timing.

Brokers, lenders and consumers will be noticing changes in mortgage applications, and the ongoing administration of mortgage accounts, as lenders switch over to the new rules.

1. There will be clear distinction between mortgages sold on an “advised” and on an “execution-only” basis, with most future sales and variations being advised, requiring staff to be trained and qualified to the required standard to give advice. 

2. Procedures for giving advice to borrowers will be more detailed. Firms will need to ask more questions to determine what mortgage product is suitable, taking into account individual needs and circumstances, so mortgage interviews could take longer and may even be spilt into two separate interviews. 

3. As well as buyers, re-mortgagors will also find that the process has changed. People wishing to make changes to their existing mortgages will also be affected, and may be required to go through an advised process and a new affordability assessment. 

4. The new rules reinforce measures to assess the future affordability of mortgages, as well as initial payments. Lenders will apply an interest rate “stress test” – to ensure that the loan would still pass the affordability requirements even if the borrower’s payments were higher. Lenders will also have to consider the impact of known changes, such as retirement or redundancy, when assessing affordability. 

5. Lenders will have to make a more detailed assessment of the borrower’s expenditure, including normal spending as well as credit card and other loan repayments. Borrowers may need to produce more evidence of their spending habits and other commitments than before. 

6. It will still be possible to take out an interest-only mortgage, but this is likely to remain a niche product. Customers wishing to take out an interest-only loan must demonstrate a credible repayment strategy to repay the loan at the end of the term and any costs associated with that strategy must be taken into account in assessing affordability. 

The Council of Mortgage Lenders will work closely with the Financial Conduct Authority and lenders to ensure any implementation concerns are minimized, however, we would urge lenders and finacial advisors to look at each case sensibly and not to over react, otherwise there may be unexpected consequences.