The Mortgage Market review came into effect on the 26th April 2014, heralding the largest change to the mortgage market in over 10 years. The main changes were a requirement for ‘advice’ at every step in the process and for every person involved in the advice process (i.e. broker and lender) to be a fully qualified and licensed adviser, with full liability for the advice given. This heralded a sea-change for mortgage professionals and has led to a far greater proportion of mortgage business being processed via intermediary channels as opposed to direct to the banks.
From a customer perspective the main change has been with regards to how they access their mortgages (again more so via brokers and not direct to the banks themselves) and also how their background and lifestyle affect what level of mortgage they can take. This is principally connected to major items, such as debts in the background, childcare costs and payslips deductions such as pensions, but also includes things like meals out in restaurants and hair care costs and inevitably lots of the media commentary has focused on this.
Following hot on the heels of MMR, came Mark Carney’s announcement that henceforth only 15% of any lenders loan book could be on a ‘risky’ high loan to income basis, which was defined as any loan where the applicant was borrowing more than 4.5x their income. This position was further ratified by lenders like Lloyds and RBS/NatWest (conveniently where the government is the majority shareholder) which have enshrined this announcement in official lending policy across the board.
The final recent change has been on the subject of buy-to-let mortgages, where the majority of banks have chosen to introduce a nominal rate of 5% and to base their rental requirements on this, as opposed to the lower pay rate, meaning higher yields are required to fund the mortgage. The impact of this will be more keenly felt in London where rental yields have not kept pace with rising property prices.
The key – as ever – is ensuring that you are in position of all of the facts and that you are receiving the best possible advice from a whole of market adviser who will be able to source the product you require in the best structure possible. If you do this then thing should be fine. The overall impression created by the above changes has been overwhelmingly negative, fuelling a fear in a large number of people that they will no longer be able to get the mortgage they require and that they are now in a significantly worse position than they were in at the start of this year. For the majority of people that is simply not the case and most people can do exactly what they could do previously and can borrow exactly the same as before, albeit possibly with a different lender or on a different structure.
The mortgage market is continuing to grow this year and lenders anticipate that will continue throughout 2014 and on into 2015/16 and this would not happen if the mortgage market had tightened as significantly as people believe and if majority of people were no longer able to do what they wanted to do. The key with mortgages is always choice and this is still the case now and thankfully the choices are still out there – so long as you know where to go and how to do it.Your home may be repossessed if you do not keep up repayments on your mortgage.