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12:25 PM, 17th April 2014, About 10 years ago 13
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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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12:22 PM, 22nd April 2014, About 10 years ago
Hi
I have a small portfolio of properties and foresee nothing but trouble ahead for landlords with regards to mortgage applications and the flood of properties coming on to the market as the MMR starts to hit the residential market.
As mentioned in your forum the MMR will cause large amounts of people to become accidental landlords and will flood the rental market. The banks are already looking at higher deposits from landlords or have started tweaking the conditions like no 1st time landlords of will not lend on a property that may be of a higher value than the other properties in your portfolio. MMR is going to have massive repercussions and the Government will will soon start to back track as they see the nightmare unfold as the housing market comes to a halt.
It is now almost impossible for first time buyers and most have had no choice but to rely on bank of mum and dad. Well now bank of mum and dad will disappear as mum and dad realise they themselves are struggling to obtain a mortgage and need every penny themselves.
And we all know when the market at the first time buyer end dries up then the rest of the market will slow or grind to a halt.
I my self are in the midst of applying for a mortgage through my broker and was shocked when he said 10 days ago he would need to move quickly regarding my application. I was shocked and a little angry when he mentioned MMR which my first thought was not more meddling from the government / FSA. I have a large deposit and well above average income and perfect credit score and the application is not going as well as expected.
If of coarse I was happy to settle for a very very affordable property then I would sail through the application process but my wife and three kids might not be so happy living in a one bed flat.
I read a survey that was carried out by CML who ran a test on approved mortgages from last year and found over 64% would have been refused under the new MMR rules. The crazy thing is that out of the 64% less than 1% had had trouble over the last year with their mortgages.
All I can say is the MMR deadline is officially not hear yet but so far its been a nightmare as many of the criteria is already being applied by the lenders.
Mark my words the introduction of the MMR is bad for all involved.
John Constant
16:45 PM, 23rd April 2014, About 10 years ago
Reply to the comment left by "Lee Alderson" at "22/04/2014 - 12:22":
Lee, whilst there are going to be pretty fundamental changes to the way that mortgage business is going to be conducted going forward, I don't believe that the changes will be as drastic as you are envisaging.
Being a Financial Adviser means that you have to be ready to adapt to changes, and that has certainly been true from the time that I entered into the industry nearly 13 years ago. We had a similar scenario in 2004 when residential mortgages were regulated. The end result was that day came and went, the new rules were applied, brokers followed those rules and that became the new normal.
The roots of MMR came in the aftermath of the Credit Crunch; yes, the politicians did look at the causes, and came to the conclusion that the mortgage market was not regulated tightly enough. Mortgage credit was too easily available, especially through the liberal use of the Self-Cert mortgage and the wholesale availability of mortgages to those who had had credit problems in the past. Tightening up the regulations will restrict some borrowers. Fact. In this respect, it will stop some people coming into the market. This will be to your advantage.
You mention First Time buyers in your post. Just consider this for a moment. The Government appreciate that to get the housing market moving, they must bring the first time buyers back, hence the new deals whereby they guarantee the security to the lenders. This, in turn, means that lenders are now confident to come back to the market with 95% deals. Bank of Mum and Dad is not the only way. We have a more vibrant market now than we did in the dark days of 2008/2009. At that point, brokers could only choose from around 1300 mortgages from all lenders. We are now up to around 4,000 or so.
You could take a broad view and say that lenders are tightening criteria and landlords will never be able to get a BTL mortgage ever again. However, that is not the actuality of the overall situation. Specialist BTL brokers, such as ourselves who offer a comprehensive range of products, will know where to place your case. We know the criteria; we know what the lender is looking for. Trust your broker!
I have not seen the CML survey that you refer to. However, it sounds as though the CML were applying the new rules to the old situations, and coming up with a figure that will cause shock. However, I will say again, that a broker will assess your circumstances and compare it to the acceptance criteria of a lender. Only then will the application be submitted, so I do not expect 64% of mortgage applications being rejected.
If I must stress one thing in this post, that is to take the appropriate advice when you are buying property. When it comes to the finance of that property, speak to your trusted broker. You will not regret it!
18:48 PM, 24th April 2014, About 10 years ago
Reply to the comment left by "John Constant" at "23/04/2014 - 16:45":
Hi John
I take on board what you've said but still find it difficult to agree with all your comments. I do believe the market needs to be more prudent on lending and certainly I dont want to see another crash.
But I feel with my experience so far regarding my mortgage application is that I am having to dig a lot deeper into my pocket regarding my deposit which is well over the 50% ltv.
Now my first thing when having no option but to do this is I am tying up valuable working capitol which without boring you means less to go round for general house improvements etc etc. If you times me by 100 or 200 thousand successful mortgage applicants then how much money has been taken out of the economy which is not good when we are already close enough to the edge of recession.
This link will take you to the CML website on a page with some very interesting reading regarding MMR
http://www.cml.org.uk/cml/policy/issues/5105
You also mention the first time buyers government backed help which I agree is a great way to get the market moving. The problem with this is it is supposed to be coming to an end.
The exact term is The scheme is to be withdrawn in an orderly manner.
Regarding my broker who I have used for many many years who has done me proud on many occasions seems to be losing the will to live with the whole industry. He seems to be having more and more control taken away from him and regarding applications he mentions things like the Hunter Group and having to apply to his network for authorisation to proceed etc.
Personally a lot of the changes I see happening will do nothing but harm.
I foresee homelessness on an out of control scale.
A generation of renters with no hope of home ownership.
A drop in property demand on par with the crash.
Families stuck in properties without the chance of moving.
Another housing market price correction.
I do hope this will not be allowed to happen but as we all know the government seem to react rather than be proactive and prevent.