The Mortgage Market Review (MMR) and how it affects you
Many people will have heard the MMR phrase being talked about recently but won’t know how it affects them.
Firstly let’s clarify that we’re not talking about the vaccination that children have!
MMR in this context is the Mortgage Market Review carried out by the FCA, the recommendations of which were introduced last month. They impact on how people apply and are eligible for mortgages. Here is our guide to the theory behind the changes and how you might be affected.
What is MMR?
MMR was introduced as a result of the financial crash where some people were allowed to take out a mortgage they could not afford to pay back.
The Review aims to make sure that when you take out a mortgage you can afford it and it suits your needs. This means that there are a few changes in the mortgage application process which you will notice.
What is changing?
Lenders are going to have to ask more detailed questions about your present and future income and about your average spending patterns. The new rules will see stress testing of potential borrowers become more stringent, to help sift out those who may easily default in the future – and give borrowers more of an idea as to whether their finances can stand up to a base-rate rise.
This will form part of a much more detailed application process. Borrowers will be required to provide more detailed information into their finances, including their intended retirement age, proof of future incomes, and other potential costs like financial dependents.
Information on pay will also be reviewed in further detail. Lenders may ask for more information on income earned through bonuses, commission or overtime. All in all, the questioning is to become much more thorough, as a way of ascertaining future financial security.
The rules are also to become much tighter in respect to interest-only mortgages – arguably one of the contributing elements of the crash. Lenders will now review a borrower’s repayment strategy throughout to ensure it will eventually be re-paid.
But the new regulations will bring benefits, too, in the form of further advice for borrowers. Gone will be the days of non-advised applications. Future borrowers will be much better informed about what is potentially one of the biggest financial decisions of their life and that can only be a good thing.
You will now need to obtain professional advice from companies like Flagstone to ensure that the mortgage is suitable for you.
While there will be more questions and systems in place, at the end of the day MMR is in place to give you greater peace of mind in your loan. Homeowners will feel more confident that they will be able to afford the repayments throughout the entire lifetime of the mortgage – even when the Bank of England increases interest rates.
How we can help
The mortgage market is particularly buoyant and will remain so. As independent mortgage advisers, we are able to offer you the best rates on the market and make sure you find a mortgage to suit your lifestyle.
We currently have two year fixed rate mortgages at 1.84% so while the questions might increase, the affordable rates should continue.
The Mortgage Market Review is a positive step in creating a stable and secure environment for homeowners. If you have any questions please do not hesitate to contact myself or my team.