13:08 PM, 5th March 2014, About 7 years ago 21
The Mortgage Market Review MMR will come into effect on the 26th of April. The New MMR rules will force lenders to prove that borrowers can afford the monthly mortgage payments on their FCA regulated main residence loans.
This will involve much stricter proof on Full Fact Finds and applications showing monthly budget planners indicating borrowers can afford all their existing commitments on top of any new borrowing. This goes back to the old days when I started in Banking pre income multipliers and self cert when all loan applications contained a monthly budget planner (sensible I think).
The fear for Buy to Let is that with these stricter proofs required borrowers will be tempted to circumnavigate these rules by declaring a property purchase to be Buy to Let instead of their actual main residence. Hence they can take advantage of Buy to Let stress testing where the rental income has to cover the interest only loan payments by 125% instead of proving their earned income can cover the full mortgage payments.
This is obviously wrong as there is in fact no actual rental income and the lenders contract states the borrow can not live in the property without permission or moving the mortgage. Hence borrowers will be in breach of contract, have no FCA protection and be liable to repossession.
A FCA spokeswoman said, “lenders who are currently offering buy-to-let products need to be alert to the potential of borrowers or brokers attempting to get around MMR rules and have systems and controls in place to prevent this from happening. It is one of the areas we will be looking at when we undertake our post-implementation review.”
In a recent Mortgage Strategy poll 53% of mortgage brokers said they had a client try to take out a Buy to Let instead of a regulated main residence loan even though they knew they would be living in the property!
At Property118 we know from past readers questions asking for help that they are many people now either renting out their main residence or living in their Buy to Let without telling the lender. This is bad for Landlords as a whole as it could potentially impact on lenders willingness to lend to Landlords or stricter criteria.
Therefore it could be beneficial for the PRS that Lenders and brokers are more vigilant in stopping these false applications becoming more common place post MMR.
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