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Changes to the Mortgage Application Process

What is the MMR (known as the mortgage market review or MMR)?

The MMR was a comprehensive review of the mortgage market, which started with a Discussion Paper in 2009 and culminated in a Policy Statement and rules being finalised in October 2012.

What is the background to this?

The MMR set out the case for reforming the mortgage market to ensure it is sustainable and works better for consumers.

It had become clear by the height of the market in 2007, that, while the mortgage market had worked well for many people, it had been a cause of severe hardship for others. The regulatory framework in place at the time had proved to be ineffective in constraining particularly high-risk lending and borrowing. The MMR package of reforms is aimed at ensuring the continued access to mortgages for the great majority of customers who can afford it, while preventing a return to the poor practices that we saw in the past.

What could the MMR mean for you?

The majority of the MMR changes came into effect on 26 April 2014. The rules are designed to protect consumers from the kind of reckless mortgage lending that would leave them unable to make repayments.

Previously, many mortgage offers were based on a multiple of the buyer or homeowner’s income. Now, more consideration will be given to the household budget and how much spare money is available to them. The MMR requirements affect both mortgages  to purchase property and re-mortgages.

The rules require lenders to;

  • Assume full responsibility for assessing whether the customer can afford the loan, and they have to verify the customer’s income. They can still choose to use intermediaries in this process, but lenders remain responsible.
  • Lenders are still allowed to grant interest-only loans, but only where there is a credible strategy for repaying the capital.

Lenders will also have to “stress test” an applicant’s ability to repay if interest rates increased over a five-year period. For some consumers this is may lead to some applications being rejected.

However, the Building Societies Association (BSA) said this did not mean that those on lower incomes or those only able to offer a small deposit would be frozen out of the property market.

Only new mortgages are affected by MMR, therefore if you have an actual mortgage offer (distinguished from offer in principle) which is dated before the 26th April the offer would have been provided without having regard for MMR. Any applications/offers issued on or after the 26th April will need to take into account the new requirements.

The experience of our existing clients

I have a client who informed me that a loan he had taken out to buy a car had “thrown a spanner in the works” when applying for a mortgage. It resulted in the client getting less money. He also thought that the whole process took much longer.

In practice:

I recently read on the BBC research carried out when the changes were being drawn up that there were indications that in a normal mortgage market the new rules would probably affect about 2.5% of borrowers.

In a more buoyant market, possibly a market that’s starting to overheat, that could be as much as 11%, so it was suggested that the impact of MMR is going to be much smaller than some people fear.

Points to consider:

In light of the changes implemented by MMR:

  • Consider your finances and mortgage arrangements at the earliest opportunity so that you can address any obvious issues, before outlaying any costs on a proposed purchase.
  • Discuss your options with your bank/mortgage adviser to ascertain general guidance on the Lender’s lending criteria
  • If you are selling your property, please remember to factor in additional time buyers are likely to require to secure mortgage finance for the purchase.
  • If you have a mortgage offer in place, pre 26th April 2014, it will be crucial to complete on the mortgage officer before its expiry date. If a new offer is required, this may result in a new application being completed, which would be subject to the MMR requirements.

If you have any questions regarding MMR or the conveyaning process in general, please feel free to contact us.