Mortgage Market Review Already Causing Delays For Borrowers
Would be residential property buyers are dismayed about the change of the rules on residential mortgages, with strict lending criteria tightened following the introduction of the Mortgage Market Review (MMR).
Since 26th April 2014, mortgage lenders have been required to carry out much more detailed checks of a borrower’s financial situation to be sure that they can truly afford to purchase and continue to afford the property, both now and in the future.
The introduction of the MMR is supposed to help regulate the residential property purchase market and does not yet apply to buy to let mortgages, but that could happen in time.Research conducted by the Money Advice Service (MA) showed that three in four first-time property buyers admitting that they had overstretched themselves financially in order to get on the housing ladder, failing to calculate the real costs of affording property and causing financial difficulties for quite a few, leading to a high proportion of property repossessions.
The new Mortgage Market Review (MMR) rules may sound daunting, but they are designed to protect a property owner’s finances and the property, so it’s really just a matter of consumers being well prepared.
Mortgage lenders require detailed evidence that potential buyers can readily afford the mortgage, even if there are changes in circumstance. Lenders now carry out a more thorough assessment of what potential buyers earn, owe and spend.
Property buyers are now asked more questions to determine the suitability of a mortgage product, taking into account the specific needs and circumstances of borrowers who also need to provide evidence of all earned income, financial commitments, including existing loans and credit cards, as well as utility bills and other household spending. Lenders are also applying interest rate stress-tests to check if borrowers can continue to afford mortgage repayments in the event of a rise in interest rates.
Mortgage product sales should now be completed on an advised basis, where a qualified mortgage adviser has identified and recommended a suitable product based on a borrowers specific needs and circumstances.
If borrowers decide to reject the qualified mortgage adviser’s recommendation and conduct their own research into mortgage products on an “Execution Only” basis meaning that if the mortgage product chosen turns out to be unsuitable, it will be harder to make a claim against the lender.
The introduction of the MMR also means that interest-only mortgages are now only available as a niche product from a limited number of select mortgage lenders and borrowers will need to show a credible repayment plan to repay the original loan amount at the end of the mortgage term.
The introduction of the MMR was only supposed to impact residential property mortgage loans, however, buy to let mortgage lenders and banks offering commercial mortgages are also facing delays as the new rules appear to be being applied across the whole of the mortgage market.
Since February this year, I have been attempting to purchase a property that has been converted into 2 x 1 bed apartments, using a commercial mortgage. The deal was agreed and was supposed to have been completed before the beginning of April but the lenders insisted on performing the additional checks because they were aware of the impending changes and decided that the exercise was valid.
This is still ongoing at the time of writing, however, I have provided all the required financial and lifestyle information to the lender and have gone further with the stress testing than the lenders have, proving the continued affordability of this purchase even with interest rates above 10%.
Here’s hoping that this property purchase completes this week!
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