Mortgage Market Review Affected Housing Market Before Launch
The new regime for the approval of mortgages came into force over the weekend (26th April 2014) but even before it was officially launched it was having a dramatic effect on applications, with loan offers being carefully scrutinised and the impending process had lenders asking even more questions before approving any mortgage offer.
I experienced the vagaries of the system myself, when taking a call from a lender the day before funds were due to be released, I was asked to provide even more details than ever before on a loan application, culminating in further delay to purchasing, and the details I had to provide and verify could have been done weeks before.
The lender said the additional information was in order to comply with MMR and this was before the official launch date. The property I was purchasing should have completed last week, before the MMR introduction date, but the delays caused by the lender requesting verification of the additional information required to process my loan meant that the loan process was delayed and resulted in dragging things out, until 9am today, when my solicitor called me to say that the purchased had finally completed.
The additional requirements of the MMR will result in the death of quick purchasing by property investors, however, I now know that in order for loans to be agreed that I have to provide extremely detailed accounts, financial projections, and provide verified proof of everything I have ever done in order to prove affordability.
The personal finance industry publication Mortgage Strategy says 7 out of 10 mortgage brokers reckon that it will be harder and slower for prospective purchasers to get a mortgage loan under the new MMR regulations.
For all new mortgage applicants it means not only providing evidence to the lender of all income and earnings including payslips or audited and verified accounts for the self-employed, but also requires providing details of all spending, too.
Mortgage applicants must itemise and cost spending on things they cannot do without, as set out in a list provided by the Financial Conduct Authority (FCA), including food, household cleaning and laundry, all heating costs, water bills, telephone, essential travel and existing property charges such as council tax, buildings insurance, ground rent and service charges for leasehold apartments.
Applicants must also disclose discretionary spending on clothes, household goods, personal goods such as toiletries or leisure activities.
The FCA says mortgage applicants must itemise other debts such as credit card bills, outstanding loans, child maintenance and alimony payments.
Mortgage lenders and finance providers must consider how interest rates are predicted to change over the next five years, to gauge the affect on borrower’s mortgage repayments. If payments are likely to go up then the lender will check that the borrower can afford it based on disclosed financial commitments.
And if mortgage terms extend into a borrower’s retirement, the lender has to check on pension income predictions too, in order to judge continued affordability.
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