It’s finally arrived ... MMR (Mortgage Market Review) Applicants face tougher questions about their lifestyle, under the new rules that take effect on Saturday. The changes are designed to hardwire common sense into the mortgage application process, the Financial Conduct Authority (FCA) said. The Council of Mortgage Lenders (CML) said the transition to the new rules would be smooth, despite it being the biggest change to the mortgage market for more than a decade and many lenders have already changed their systems so they comply with the new rules. Drawn up during the financial crisis, the Mortgage Market Review (MMR) is designed to protect consumers from the kind of reckless mortgage lending that would leave them unable to make repayments. At the heart of the regulation are new affordability checks that will see applicants interviewed in much greater depth about their income and outgoings. Martin Wheatley, the chief executive of the FCA, told the BBC: The core principle is a very sensible one - lend to people what they can afford to repay. Weve come out of a period, particularly in 2008-09, when there was no attempt to verify peoples ability to pay, and weve ended up with lots of payment problems, lots of people in mortgages that are problematic for them, and if we had a different interest rate environment wed see a lot of foreclosures. In the past a significant number of mortgage offers were based on a multiple of the buyer or homeowners income. Now, more consideration will be given to the household budget and how much spare money is available to them. Applicants will be expected to explain if they are predicting any significant change in their income or spending. Lenders will also have to stress test an applicants ability to repay if interest rates increased over a five-year period. This is expected to 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. Peter Hill, the chief executive of the Leeds Building Society, told the BBC that research carried out when the changes were being drawn up indicated 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 thats starting to overheat, that could be as much as 11%, so I think the impacts going to be much smaller than some people fear, he added.
Posted on: Mon, 28 Apr 2014 10:39:53 +0000