New regulations from 26th April - MMR

On April 26^th 2014, a new regulation will govern the mortgage market entitled the Mortgage Market Review (MMR).  Those who have recently arranged a mortgage will have seen that there is already a vast amount of regulatory paperwork involved in all aspects of the mortgage process.  This will not change.  But the amount of detail involved will increase somewhat.

Affordability has always been a key element when arranging a mortgage.  The MMR takes this a step further in also requiring a lender to predict affordability into the future.  Will any material changes occur in the next five years, how much will you spend on seasonal commitments this year, are you intending to expand your family?  These are just some of the more intrusive questions that are to be explored when budgeting for a mortgage.

Lenders have always stress tested affordability when arranging mortgage loans.  Now it is projecting to ensure the customer will be able to meet all future commitments over the next five years.  Difficult task!

But this also means that from April onwards, what was once an affordable mortgage may suddenly become unaffordable due to the perception the lender has on consumer spending habits, historically and projected for the future.   

The lender has always endeavoured to protect their investment to ensure they can get their money back should a customer not pay the mortgage.  The new rules mean they also now need to report on this to the regulator and confirm all projections and detailed calculations.

Even if a customer has life cover, income protection cover and any other insurances, these monthly payments are deducted from actual income as a monthly expense!  This could have an adverse affect on affordability and despite a lower risk and having been protected for a number of outcomes the customer may not achieve the mortgage despite their commitment to the cause!

Today, it’s about affordability.  From April, the lender is predicting the next five years affordability, risk assessment, future spending behaviours and more.   Whilst you might think you are superb candidate to raise a mortgage to purchase your dream home, the lender is being forced to think and project your assumed ongoing risk and affordability, amongst other considerations, before making their decision on whether to lend to you, or not.