New mortgage regulations have come into force and lenders do still want to lend
The new Mortgage Market Review (MMR) regulatory changes came into effect over the weekend. Many lenders and mortgage brokers had already switched before the weekend and are successfully operating to the new regulations. From now on all mortgage brokers and providers have to operate under the new guide lines.
Although these changes are more stringent, it is worth remembering that the mortgage providers do still want to lend, they just need to make sure that they are lending responsibly and ensuring that borrowers are not taking out loans that are too large and more than they are likely able to afford.
Customers now have to receive mortgage advice
The main change is that lenders and mortgage brokers now have to advise their customers, whereas previously they did not. This is to help ensure borrowers receive a mortgage that is suitable to their requirements today and also in the future. In order to determine what advice they should give each customer they will now need to ask more questions to fully understand their clients’ current circumstances, spending habits and plans for the future.
Regulatory authorities are concerned about borrowers taking out mortgages that are potentially too large and could be unaffordable in the future, even if they seem affordable when first taking them out. The UK economy is continually changing over time, so over a typical 25 year mortgage term mortgage payers are likely to encounter many challenges, the main one being changing interest rates. MMR regulations require lenders to stress test the mortgages that they are providing to see if their customers will be able to afford the increased monthly repayments that would follow interest rate rises. Lenders will also be more concerned now about customers borrowing into retirement and will want to ensure that borrowers have a plan for when they do retire.
Extra considerations for joint applications
For joint mortgage applications where the additional income of two applicants increases borrowing power, the lenders now need to know how a couple will manage to keep up their repayments if one of them was to lose their job. In addition plans going forward may also be asked about, such as any plans for children and have these additional costs been taking into consideration.
There has been a lot of talk about mortgage interviews being longer, which is understandable because mortgage advisers now have to give advice and in order to do so they need more information. Lenders will interpret the new guidelines differently, so there will be differences in questions asked. Over the next few months this is all likely to settle down as lenders and brokers get used to and understand the new regulations, therefore becoming more comfortable with them.
In the meantime there will most likely be some frustrations as house sales and purchases fall through. Therefore there is likely to be a rise in demand for bridging loans to help deal with chain breaks!