Will the MMR make the residential mortgage market a safer place?

April 26^th saw the biggest changes to mortgage regulation since the FSA (now the FCA) started regulating residential mortgages back on 1^st November 2004 or ‘M-Day’. Aptly named the Mortgage Market Review (MMR) the changes were prompted in response to the financial crisis of 2008/2009 and are aimed at making the residential mortgage market a safer place in the future by placing greater emphasis on advice, affordability and tightening up rules on riskier types of lending.

A brief summary of the changes are:-

• Advice must be given where there is any interaction between advisor and customer (there are some exceptions) whereas previously consumers could opt for a non-advised or ‘information only’ process, in fact prior to MMR some brokers/advisors only offered a non-advised process.

• Greater emphasis on responsible lending:-

o   Greater focus on income and expenditure (affordability)

o   Lending into or near to retirement will be scrutinised to ensure customers can afford their mortgage post retirement

o   Whether an interest rate rise would make a mortgage unaffordable in the future

o   The complete removal of fast-track applications (where low loan-to-value applications didn’t require the lender to see proof of income), income will need to be evidenced in every case now

o   Removal of self-cert mortgages, income must be proven and documentary evidenced retained

o  Evidence of a credible repayment vehicle must be provided if any element of a mortgage is to be on an interest-only basis, pre-MMR lenders had been tightening up on interest-only lending with some withdrawing from it completely and others reducing their maximum loan-to-value for interest-only lending

• All staff involved in the advice process must now be qualified to a suitable level within a shorter time-frame

 

We don’t think many customers will notice much of a change in the mortgage application process, we’ve always requested more information and documentation than most lenders requested themselves pre-MMR to help ensure a smooth process and that if the lender did raise additional queries we’d already have the information. Other than that there might be some delays with applications to some lenders whilst keep a close eye on their new processes to ensure they are compliant.

Those would-be borrowers that were on the fringes of what they could borrow pre-MMR might find they can’t borrow quite as much now so may need a bigger deposit, so some first-time-buyers may have their plans put back.

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