24 Dec 2014
Michael Begley, Independent Mortgage Adviser, examines the outcomes to the Mortgage Market Review.
The background to the Mortgage Market Review (MMR) which took effect on 26 April 2014, was that it was felt that while the mortgage market had worked well for many people, it had become a cause of hardship for others. The regulatory framework at the height of the market in 2007 had proved ineffective in constraining high risk lending and borrowing. The MMR package of reforms was aimed at ensuring the continued access to mortgages for the great majority of consumers who can afford it, while preventing a return to the poor practices we saw in the past.
However, seven months down the line, it appears that these changes have not been beneficial to some categories of borrowers, including older borrowers. Indeed, the Intermediary Mortgage Lenders Association (IMLA) has urged the Financial Conduct Authority (FCA) to provide more clarity around acceptable mortgage lending under MMR, with older borrowers being one cause for concern. The lender trade group has stated that while the new rules have not stopped lending to groups such as these, and the self-employed, it has stopped a “pragmatic approach” being taken.
The IMLA has stated that the lack of clarity at present has inhibited lenders. The Council of Mortgage Lenders has commented that the confusion about what the regulator will and won’t regard as acceptable in terms of income verification and predictability of expected income is causing problems. It would appear, therefore, that lenders are erring on the side of caution at present.
As an example, following MMR, older borrowers have faced reductions in the maximum age at which they can borrow to. They now have to prove they can afford their loan into retirement as lenders must consider future changes in income and expenditure. This has lead to issues for consumers, with one lender calculating the maximum mortgage amount using retirement income, yet still including the debts the customers have now even though they will be paid off by retirement.
So how is this going to change? Well, the FCA is due to publish two thematic reviews next year, one of which will focus on advice and the other on lending criteria. These will be published in the second and fourth quarters of next year, and it’s hoped that the information provided within the reports should help.
It was always expected there would be some teething problems with MMR, and the solution must be clearer guidelines from the FCA about the boundaries of permissible practice. Hopefully upon publication of these reports we will see the required clarity provided and a more “common sense” approach being applied.