12:25 PM, 17th April 2014, About 8 years ago 13
For those of you who, like me, are involved professionally with mortgages, the spectre of MMR, or Mortgage Market Review as it is more correctly known, is finally about to hit home.
For the interest of everyone else who is not professionally involved with mortgages, MMR is the FSA’s (and now the FCA’s) baby, which is, primarily, going to ensure that the UK mortgage market works more effectively for residential purchasers, ie, for people buying their own home, aka ‘owner occupiers’.
So, on the face of it, MMR should not affect the Buy to Let Market; or so you would think.
In a nutshell, one of the MMR’s chief points will be to seek to match people’s actual spending habits more closely to mortgage underwriting.
This could include such banal questions as “How much do you spend on your pets?” and one lender is asking “how much do you spend on furniture?”. In short, borrowers spending is known being scrutinised to the nth degree.
Now, this can all be viewed in various ways, one being that “it’s about time that lenders stopped lending to those who cannot afford it” although that’s not always the case of course, and yet another balanced view is “I know I can afford it, my rent is more than the mortgage payment is going to be” and there have been a variety of other emotive comments made throughout the professional and borrowing community. Whichever side of the scales you fall on, if you are a mortgage borrower, the ramifications of the new rules will hit home with you too.
Another of the aims of MMR will be that all but the most simple mortgage product changes, will have to be done on an advised, rather than an execution only basis.
How many borrowers currently believe that when they go to their bank that they are getting ‘advice’? Wrong! Banks do not provide advice, they give product information. But how many people bought a mortgage product thinking they were properly advised? This is all going to change because now the bank salespeople (not ‘advisers’) are going to have to be trained and get qualified. Even then though, they will still only sell their bank’s products and won’t be ‘whole of market’.
An absolute game changer with the staff – and customers – of High Street banks. There is already a lengthy wait to see the bank mortgage consultant, but the additional workload is going to be enormous for them.
As you probably know, residential mortgages were first regulated in 2004 by the FSA, and BTL was deliberately kept outside of regulation. This was because of the nature of it, ie, an investment product for the more sophisticated borrower rather than someone who is buying to put a roof over their head. Despite the aims of MMR being for residential lending only, there will be repercussions for the BTL investor too, whether experienced or not.
There has always been a bit of a grey area where regulation of BTL’s are concerned. I think that it is quite well known that BTL’s are not designed for the owner or their families to occupy, but the lenders did accept that there may be situations where this type of letting may occur. Take dependant relatives, for example. Since mortgage regulation in 2004, there have been lenders who have offered “Regulated BTL mortgages”. Generally, these products allowed relatives/close family members to occupy BTL property. However, with the increased regulation, some BTL lenders do not have the appetite for the additional workload and have simply withdrawn from the regulated BTL market.
This has also spilled over into the Commercial Mortgage market too. Some lenders who offered Owner Occupier mixed use property, such as live/work units (flats over a shop, where the mortgage holder also lives) have withdrawn from that market. Decreased availability will inevitably lead to less competition, which will equal higher costs.
Indirectly, there will be consequences for the BTL landlord too. The atmosphere at the FCA is one of a more prudent market where lenders do not lend irresponsibly. This has already led to a tightening of criteria. You only have to look at The Mortgage Works change of criteria last week, where they will no longer lend to anyone over the age of 70 at application.
One further general change in criteria has also hit the BTL borrower. The lenders are now more canny when assessing a lending request where the proposed borrower does not have a residential property of their own. The fear is that borrowers will try and arrange a BTL mortgage, which is easier to obtain (as it effectively sidesteps the stricter income evidence requirements) and move in to the property themselves. This tightening of criteria has been happening over a period of months as the consultation period with industry has progressed. And again, a major lender has changed their criteria in just the last week, with BM Solutions now removing first time BTL’ers from their list of acceptable applicants
So, although MMR is not aimed at the BTL market, it has, and will affect you more than you realise!
Now, more than ever, working closely with a professional, whole of market mortgage Adviser, is crucial to the success of getting all types of applications through.
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