Mortgage Market Review

#MMR : How will the Mortgage Market Review affect you?

The Mortgage Market Review (MMR) was brought in by the FCA and is in practice from 26th April 2014. The aim is to avoid a repeat credit crunch caused by over and responsible lending in the mortgage market.

What is the Mortgage Market Review?

It means that Financial Advisers will not be able to provide services on a Non-Advise basis. All IFAs will need to hold a relevant qualification. This means there will be better qualified IFAs, and the lack of competition should make this service profitable and worth it for the best IFAs. Overall this is better for people buying property as they will get better advise.

For Lenders: They are now fully responsible for assessing someones ability to pay back a mortgage and affordability. Therefore they will scrutinise income and expenditure to the finest detail.

Mortgage Market ReviewFrom the FCA:

They will look at your spending in three categories:

Essential expenses

This is what you regularly spend on the things you cannot do without, such as:

  • food
  • household cleaning and laundry
  • gas, electricity and other heating costs
  • water bills
  • telephone
  • essential travel (such as travel to work or school)
  • council tax
  • buildings insurance (it is usually a condition of your mortgage that the building must be insured)
  • ground rent and service charges (for leasehold properties)

Basic quality of living costs

This is what you need to spend on occasional essentials, with some allowance for leisure costs, including:

  • clothes
  • household goods (such as furniture and appliances) and repairs
  • personal goods such as toiletries
  • basic leisure costs, including non-essential transport
  • TV licence
  • childcare

Repayments and other commitments

This covers other payments you know you will have to make, including:

  • debts you are paying off, like credit card bills, loans or hire purchase payments
  • child maintenance and alimony payments

The exact details you are asked for will vary between lenders, but you should expect to discuss your regular spending in all these areas.

MMR could be responsible for the surge in the housing market in recent months. Due to the fact that the lending process will be longer and more indepth, potential buyer will have rushed buying to get their transactions complete prior to these new rules coming in place.

What does MMR mean for Buy to Let?

It is still unclear if these rules are applicable for Buy to Let investments, especially as in most cases the loan to value is lower and mortgage payments are intended to be paid with the rental income.

Please comment if you have any further information in relation to Buy to Let impact.

Property Tribes has some interesting points here:
http://www.propertytribes.com/start-preparing-now-big-changes-coming-btl-lending-t-9621.html 

– Thanks Vanessa Warwick

Conclusion

Although the point of MMR from the FCA is to make sure mistakes of the past do not happen again it will damage the property market especially for those responsible lenders, IFAs and investors.

Immediately we will see a drop in market transactions and decrease in first time buyers on the market. The seasoned investors should remain mostly unaffected.

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