What’s happened since the Mortgage Market Review?

By Paul Northmore, Managing Director

At the end of April the mortgage landscape changed dramatically due to the Mortgage Market Review (MMR).

As our previous blog post explained, mortgage lenders now have to scrutinise mortgage applications much more closely to check the borrower can afford the repayments, both now and in the future should mortgage interest rates rise.

So from our perspective as advisers, what changes have we seen in the last few weeks?  And what suggestions can we offer to mortgage (and remortgage) applicants?

1. Allow plenty of time.  Mortgage applications are currently taking 3-4 times longer to process then they did before the MMR.  Mortgage lenders simply have more paperwork to do, and haven’t yet fully got the capacity and systems in place to handle it.  There’s a backlog, and it’s only going to get worse as lenders get busier.  Don’t be surprised if something which might have taken a couple of weeks pre-MMR now takes a couple of months.
2. Expect interest rate rises.  There’s always talk of interest rate rises, but the criteria of the MMR means you need to be able to afford your mortgage even if (or when) rates rise.  Don’t just imagine that’s a long term issue though.  It’s conceivable that some lenders may temporarily put up their rates in the short-term to dissuade new applications while they deal with the current backlog! 
3. Do the detail.  Be prepared for forensic questions about your finances.  For example, how much do you spend at the hairdressers?  When was the last time you placed a bet?  Lenders are required to ask these questions to check that you are going to be a responsible borrower who can afford your mortgage repayments.  Keep close track of your finances, to this level of detail, and you’ll be equipped to answer the lender’s questions quickly when they arise.
4. Don’t be tempted by buy-to-let.  There’s a loophole in the MMR: it doesn’t extend to buy-to-let mortgages which allow you to live in the property yourself or rent it out.  Some other agents and advisers may tempt you to apply for a buy-to-let mortgage to cheat the system – but don’t be tempted!  The lenders are very well aware of this loophole.  They are currently being extremely vigilant in monitoring buy-to-let mortgages, and will decline mortgages which seem suspicious.  (We’ve even seen genuine buy-to-let mortgages declined because of this level of vigilance!)  Just don’t do it – you’ll simply raise the lender’s suspicions, risk your application being rejected, and weeks later find yourself back at square one.
5. Don’t commit to a time frame.  Even if you have a large deposit or you’re a first-time buyer, don’t assume you will speed through the system.  You’ll join the queue and undergo the same scrutiny as everyone else.  So be prepared to wait, and don’t make commitments until you have your mortgage confirmed.
6. Christmas is sooner than you think!  Many people who plan to move want to be ‘in for Christmas’.  Traditionally this has meant getting the summer holiday out of the way, and then concentrating on the moving plans.  But post-MMR that’s too short a time frame.  If you want to move this year, you need to start planning the finances now.  If you’re serious about moving or remortgaging, speak to one of our advisers and start the process today.