Mortgage market review – one year on – what’s changed?

mortgage market review

MMR on it’s first anniversary

This weekend brings up the first year of trading under the mortgage market review. So what affect has the review had on the market and on options for mortgage borrowers?

Expected changes following MMR

When the final details of the MMR were announced in 2013 we identified two major changes that the market was likely to see.

Timescales – we expected it would take longer on average to process a mortgage case.

Detail – it was clear that lenders were going to request a lot more detail from borrowers.

Our view was that lenders offering products direct to the public were not geared up to work efficiently under mortgage market review conditions and we expected a greater market share for mortgage brokers as a result.

What has happened?

Timescales have certainly increased for the broker, we estimate that we are spending somewhere close to 40% more time on packaging each case.

Paradoxically, the result of lenders requesting more information, in a more defined way, seems to have been cases run through the system more reliably. Although the smaller lenders seem to be struggling with workload, the major lenders are consistent with regard to response times for the majority of cases.

Trading figures for 2014 show the intermediary (broker) side of the market handled 63% of mortgage applications during the year – the rest going direct to lender. This is a major change as in the past brokers have traditionally produced just under one half of total applications with the broker’s share of the market expanding and contracting with market trends.

It appears that Lenders are simply not set up correctly to provide any level of service for direct applications. Borrowers are being kept on the telephone by lenders for up to two hours to then be told they will not be offered lending. We have also seen evidence of direct to lender applications rejected when we have then placed successfully with the same lender.

Important trends for borrowers

Affordability
The much heralded additional focus on affordability has certainly taken the edge off of maximum borrowing – it is now impractical to expect to borrow more than five times salary.

The impact of stress tests, where a lender ensures that a borrower can afford the mortgage if interest rates increase, seems to have had less of an effect than the maximum income multiple caps applied by the major lenders.

Self-employment
The self-employed have seen SA302’s become a standard requirement for nearly every lender on the market. The recent trend towards allowing downloaded SA302’s has been complicated by the additional requirements to produce a tax summary.

Interest only
From early in 2013, interest only mortgage options were disappearing from the market. That trend has continued and there are now just a handful of lenders offering interest only options for new borrowers.

Where a borrower intends to downsize in order to repay their mortgage capital at the end of the term, the barrier is often the property value and amount of equity required by the lender in order to accept an interest only application.

The good news is that you can still get an interest only mortgages with sale of property as the repayment vehicle if you can show equity from as little as £150,000.

Gifted deposits
As more young people turn to their family to help them on the housing ladder, the issue of gifted deposits has come to the fore. Where a gifted deposit is being used for a mortgage application the lender will require either a gift letter outlining the terms of the gift, or in some cases the lenders have a pro- forma gift form which needs to be completed.

We are seeing more lenders ask for proof of donor’s ID to keep on file, and proof of donor’s funds.

First-time buyers
Notwithstanding the impact of the mortgage market review, first-time buyers have had some good support in the last 12 months due to the help to buy scheme.

The help to buy equity loan scheme is proving popular (not just with first-time buyers, but also with home movers) enabling as it does a buyer with a 5% deposit to access competitive mortgage rates.

The 90% and 95% loan to value mortgages offered via the help to buy mortgage guarantee scheme has produced a wider range of options and more competitive mortgage rates.

Within the market we even have a provider that will offer 95% lending on a newly built flat under the mortgage guarantee scheme.

Stamp duty changes

The changes in stamp duty land tax following the Chancellor’s statement at the end of last year seem to have made a charges fairer. There is now less focus on property pricing at the old stamp duty land tax thresholds of £250,000 and £500,000.

We await the impact of the new Scottish Land and Buildings Transaction Tax which is more expensive than stamp duty land tax and is in place from this month.

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