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