Will it really be any harder to get a mortgage following the Mortgage Market Review (MMR) changes?
There has been lots of speculation in the media recently surrounding the MMR. It is true that the changes which have taken effect over the weekend will mean that a more in depth discussion about income and outgoings will be required prior to any mortgage recommendation being made. However, this is purely to assess whether or not the mortgage is affordable for the borrower now and will continue to be so in the future.
Why the new regulations?
These regulations have not been implemented to reduce the number of people getting mortgages, or to deter people from applying to get one. They have been introduced
- as a measure to ensure people only borrow what they can afford to repay
- to ensure borrowers have budgeted for all of the things that are important to them. This is so that customers are not forced to give up doing things they had anticipated they would still be able to afford after completion of their mortgage.
Checking our budgets and affordability
We often think that we know how much our outgoings are and how much we can afford to budget for certain things, including our mortgages. If I asked you how much your net income was each month, my own example is £1500, and then I asked you how much you think your outgoings are, mine are £1000 – so does that mean I save £500 every month? In fact I rarely save at all, so my outgoings must be around £1500, the same as my income. It was when I realised this that I also realised I cannot really afford to spend as much as I thought I could on things I do not need.
Now during a mortgage application you can expect to be asked how much you want to budget for your mortgage, but be prepared for the advisor to drill down on this figure and want to know how you came up with this figure and whether or not this takes into account everything that you do on a regular basis.
The mortgage application process should now take at least an hour. This may sound like a long time, but it is a massive financial commitment with your home being used as security, so I feel it is well worth taking this time to ensure you have covered all of your circumstances.
The questions will be relevant
I’ve heard reports in the media that some lenders are asking specific itemised questions about how much you spend on toiletries, for example. However I personally have not seen any evidence of this.
There may be some lenders who have gone a little too far with their questions, but this is their own interpretation of the MMR requirements. As soon as they realise any questions are not needed I think they will modify the content of the mortgage interview.
Mortgage providers are still very keen to provide mortgages
Lenders do still want to sell mortgages, but they also want to ensure they adhere to the new regulations, so may still be clarifying their own understanding of what is required of them while assessing affordability of the mortgage.
I have seen a slight increase for bridging loans from people who have had last minute problems securing a mortgage. At present the main reason for this is brokers and lenders getting to grips with the new regulations. Please appreciate there has been a lot of retraining, new computer systems being put in place, application form changes, website updates and advertising changes frantically going on over the past year to get ready for these new changes. Therefore some short term problems should be expected, but these problems should not be confused and blamed on the new regulations themselves.
Getting a mortgage without being put under the microscope
I have already heard of frustrated borrowers who know exactly what they want and would like an ‘execution only’ sale. This means they can have their mortgage without being given any advice. Lenders can no longer promote an ‘execution only’ sale and in some cases mortgage advisers will not even tell you how to do this. My suggestion to those people is to refer to the lender’s website, the facility to take out this type of mortgage will still be there, but the staff will most likely be wary to tell you about it.
More difficult to simply get a mortgage quote
Lenders will also be unwilling to provide various different mortgage quotations as they are now required to provide an ‘advised’ service going forward. This is one of the reasons for the detailed interview process, to ensure they get to know you well enough to know what you want so that they can recommend the mortgage that suits you best.
To receive a recommendation after the interview has happened and then ask for a different quote, with a change to the product or term for example, is not ideal for the mortgage advisor as they have to demonstrate that they have fully assessed your needs and preferences themselves. If you do want a quote without going through an interview first, you are likely to find this request refused unless you specifically state you want a ‘shopping around KFI’. This appears to be a bit of a little loophole in the regulations.
My guide to all keen house purchasers who are worried about getting a mortgage would be to allow plenty of time for the mortgage interview. Then be honest about your budget, but maybe forget about how many times you go on holiday and take part in expensive hobbies for the duration of the interview.