A Closer Look At The Current Mortgage Market

26.4.14 aka MMR day

Today, we welcome in the Mortgage Market Review which will see many changes implemented to the way in which lenders assess your mortgage application.

The ramifications are plenty and no one is safe from the intrusive but arguably necessary changes.

We look at what exactly MMR is, how it will affect your mortgage application and highlight some of the bizarre changes we have seen already including one client being asked what they spend on socks each month!

What is MMR?

The Mortgage Market Review is a complete overhaul of the mortgage market and was first proposed in 2009 by the then Financial services Authority.

Five years later and the new policy has been implemented across all regulated lending in the UK.

What are the main changes?

  • Removal of non-advised sales process
  • Every seller (Broker and Bank) to be fully qualified to give mortgage advice
  • Lenders now completely responsible for assessing affordability (less reliance on brokers)

How will MMR affect you?

We have already seen lenders implementing changes to bring them in line with the new MMR legislation and the most notable changes are the increased amount of questions around affordability, the longer processing time of mortgage applications both direct to bank as well as through mortgage brokers and the big criteria changes by some of the banks pulling out of lending such as regulated buy-to-lets.

Let’s look at this in very real terms, starting with affordability: ALL lenders now work off of affordability. Income multiples are a thing of the past. You are now required to declare and prove all outgoings including travel costs to get to work, pension payments taken out of your pay, insurance costs, child care costs, spending on alcohol and cigarettes, in fact you name it and the lenders have a box allocated to it on their mortgage calculator and all of this info will result in a new lending amount different to what you could have borrowed from that lender pre MMR.

As a whole of market brokerage we will of course still know which lenders will offer the right client more than the next lender and some lenders are happy to use the ONS (office for National statistics) figures for living costs whereas other lenders want the affordability calculator to exactly reflect your bank statements and payslips.

We have already mentioned the longer processing times and seriously, they are much longer! The main changes are to the waiting time to speak to the call centres and the time it takes to submit an application due to the extra questions but we are lucky as we have access to online application submission routes, have direct access to underwriters or allocated representatives at each bank to get cases through to offer and then completion for us, go direct to the banks and you have none of those things. The changes are adding about 4/5 days to the process on average although again knowing which lenders are busy/more prepared for MMR and which are less so is another advantage for clients using a broker and who need to move quickly.

The delays direct to bank are substantial. Many clients have turned to Fox Davidson in the last month because delays at the banks are too great and by the time they had seen the bank the property was sold elsewhere or the clients were declined and were no further into the process weeks down the line. We carried out our own research and called several of the main banks to see how long it would take to book in an appointment. HSBC told us there was no appointment at their local branch for 3 weeks, Lloyds were unable to get hold of any of the 3 branches they tried in Bristol and apologised that they could not book in a face to face appointment for us and NatWest didn’t have an adviser for 2 weeks and even suggested using a broker as it may be quicker! The facts are that a mortgage meeting at a bank must now be with a qualified adviser and so the banks have had to train all of their staff or employ qualified staff to carry out mortgage meetings, even changing your mortgage rate is now mostly advised (some online changes are not). Additionally, the mortgage meetings are now typically taking around 1.5 – 2 hours and may result in a decline of course.

Compare this to using a brokerage, you can call a broker and speak to a qualified whole of market broker immediately and you benefit from a qualified individual that will very quickly know which lenders will help you, who will be able to get you that offer quickest and will be able to get the mortgage agreed in less than 30 minutes through using a lenders online mortgage agreement in principle system. The smart clients are now all turning to brokers and until lenders get their in house systems & processes in order and processes slicker we expect to be substantially busier than we were pre MMR.

What changes will I notice post-MMR?

Here are our TOP 5 MMR changes:

  • Many more questions – One of our clients was asked what they spend on socks!
  • Dependants including children and a partner that doesn’t work will now affect the lending figure for all lenders
  • All outgoings considered such as lottery, cigarettes, petrol. Deductions from payslips now taken into account too… pension contributions, child care vouchers, salary sacrifice…..
  • All new mortgage lending by banks must now be advised
  • Timescales – Massive changes (mainly direct to bank) have resulted in appointments taking weeks to materialise & mortgage interviews taking several hours and slower processing times. The application process via brokers is slightly longer given the extra questions adding approx. 5 minutes to a mortgage interview.

In our opinion:

MMR is not a bad thing, I mean who can possibly say that checking a mortgage is really affordable both now and in the future (stress tested on future rate rises) is a bad thing, OK, maybe those that now fall foul of the new rules may disagree but tough, I guess. The changes will still ensure that those who can truly afford to pay their mortgage each month will be able to get a loan.

The changes only officially came into effect today so we will see some teething problems including some lenders systems going through teething problems and over cautious underwriters asking some seemingly odd questions. Hopefully common sense will prevail especially with good reasoning from a broker including one case where we convinced an underwriter that a client’s lottery spending (among other things) can be reduced thus making the loan affordable.

The mortgage and housing market is fierce at the moment and these changes will not affect that but will merely allow lenders to demonstrate that they have fully checked a client’s ability to borrow. In some cases we are aware of lending in the region of 6 x income (using the old skool income multiple methods) so it is by no means doom and gloom.

One thing that sticks out is that clients really should be turning to brokers to arrange their finance as estate agents won’t wait around for weeks for clients to attend their first mortgage meeting when the next buyer in line has their mortgage agreed through a broker and can move 2 weeks quicker, the result is and will be increased business for the hard working brokers of the UK, or so we hope!

Contact a fully qualified adviser at Fox davidson on 01173 736200 or email enquiry@foxdavidson.co.uk

The views expressed in this blog are those of Wesley Davidson, Director and broker at Fox Davidson. Tel 07967 033 452. wesley@foxdavidson.co.uk