The Mortgage Market Review and how you can prepare for it
If you live in the UK, then you may or may not be aware of the mortgage market review. A comprehensive review of the UK mortgage market state conducted by what is now the Financial Conduct Authority (FCA) designed to ensure the sustainability of the mortgage market, the MMR led to a number of changes in the mortgage process, all of which came into effect on April 26th. Today, we’re going to look at the main changes made, and how they can impact your chances of getting a mortgage:
What are the main changes?
- Responsibility for affordability has moved from mortgage brokers and intermediaries to lenders. Mortgage lenders are now totally responsible for assessing affordability and verifying income and expenditure.
- All individuals who conduct mortgage sales are now required to hold a relevant mortgage qualification.
- Those offering mortgages to borrowers are now not permitted to use a non-advised sales process, i.e. where the borrower is presented with the options of mortgage products (such as a fixed or tracker rate) and then selects the product themselves. Borrowers will all receive a fully advised sales process, and the mortgage lender or broker will required to establish the best product for them. However, those choosing an execution only process (usually through the post or online) will have the option of not taking the consultation.
- Key Facts illustrations must be provided to consumers, following a recommendation of a mortgage product, when requested by the consumer or following selection of a product through the execution-only route. Initial Disclosure Documents are no longer compulsory.
What does this mean for me?
Essentially, the new regulations mean that those applying for a mortgage will need to be able to show in detail their levels of income and expenditure. One of the reasons that the MMR was set up was to ensure that there was no lending to those at a higher risk of being unable to make payments, so you will be expected to demonstrate that this isn’t you!
How can I prepare?
The key to preparing for applying for a mortgage is to demonstrate both that you are fiscally stable, and are able to afford the mortgage you’re applying for. Here’s how:
Be prepared to detail your expenditure. One of the ways in which new applicants will be evaluated is their expenditure. Be prepared to detail spending habits on childcare, household bills, food, travel, entertainment, holidays and any other regular outgoings.
Pay off any debts, and sort your credit rating. It’s important to have a solid credit history, which can be demonstrated by making payments on-time, not missing repayments, keeping accessible credit to what you need (dispose of any credit cards that aren’t being used), and where possible completely paying off any existing debts. If there’s too much debt on your file already, then you might not meet the affordability criteria.
Demonstrate stability. It’s important to demonstrate that you’re financially stable. Ensure that you’re on the current electoral roll, and have a telephone land-line in place. Avoid any big financial changes in the run-up to your application such as taking on additional credit. Finally, avoid changing jobs – a key part of your analysis will come from demonstrating a steady income stream.
For more information on the MMR, visit the Ipswich Building Society’s new Mortgage Misfits infographic.