MMR- one year on, how has the mortgage market changed?
20/05/2015
It has been one year since the Mortgage Market Review (MMR) was introduced, and with it came dramatic changes to the way consumers apply for a mortgage, and lenders process a mortgage. Implemented by the Financial Conduct Authority (FCA), after they found that mortgages were being sold to people without the correct checks, the review aimed to protect both borrowers and lenders from hardship, and lead them to both make better decisions.
MMR Implementation
From April 2014, the MMR regulations were required to be used in all financial institutions that offered mortgages in the UK, and any person who sold mortgages became required to have a relevant qualification. Lenders became responsible for fully assessing customers affordability and verifying borrower’s incomes.
The MMR introduced extensive questioning for mortgage applicants, designed to assess their affordability now and in the future. These included questions about how much they spent on socialising, alcohol, personal grooming and much more. Applicants also have to state if they were planning on starting a family, if they have ever had a payday loan or if they gambled.
Reaction
Since the implementation of the MMR, there has been a decline in mortgage lending, both for house purchases and remortgages.
There were 48,500 mortgages granted in February 2014, to the total of £7.8 billion. In February 2015, there were only 40,600 mortgages, to the total of £6.8 billion. That is a collective loss of £1 billion for just house purchases in the mortgage markets. Remortgages also fell from 24,900 in February 2014 to 21,500 in February 2015.The amount of first time buyers has fallen by 16%, from 22,300 in February 2014 to 18,700 the same time this year.
Almost half of current homeowners feel like it would be difficult for them to move to a new house thanks to the new MMR regulations, creating a group of “mortgage prisoners”, according to research from the BBC. The new rules mean they can’t switch to another lender or even to another deal with the same one. There are a large number of older borrowers who are being turned away from purchasing a mortgage, as they will be over 65 at the end of its term.
The Financial Ombudsman has seen a “notable rise” in the number of complaints relating to remortgaging, and the average time in takes to secure a loan has risen from 37 days to 53 days.
All the fault of the MMR?
Although the MMR regulations have affected the mortgage market is a massive way, the market has changed since last year, and this is due to other factors as well as MMR.
The introduction of the MMR was closely followed by the less publicised Bank of England’s Financial Policy Committee, calling for lenders to limit loans of 4.5 times income to 15% of new lending. As well as this, the Prudential Regulation Authority stress test demanded that lenders raise more capital, which directly impacted mortgage lending.
The decrease in mortgage approvals year-on-year may also have come from lenders pushing through as many mortgages as possible before the MMR regulations were introduced, disrupting the final numbers.
The future of MMR
So, what will the MMR mean for the future of the mortgage industry? The Council of Mortgage Lenders seem to think that lending volumes will improve this year. The Stamp Duty reform introduced in the 2015 Budget and as well as a decrease in unemployment, is set to see approvals improve throughout 2015.
The strong growth of the UK economy has sheltered the mortgage industry from extensive negative impact thanks to the tough rules of the MMR, and the fall in approvals is set to pick up throughout the rest of 2015.
Has the MMR been a success?
The MMR has had a substantial impact on the mortgage industry. Even though mortgage approvals may have fallen, this does not necessarily mean that the market has suffered. Analysts are starting to see a cultural shift, with brokers operating at higher standards, submitting better applications and really considering the customers situation.
Mick McAteer, FCA non-executive director, says the MMR has improved the reputation of the mortgage sector. He said:
“There is a more sensible approach to lending generally but it has also retained flexibility where necessary.
“Overall, standards have become more responsible and there is a more measured approach to lending. It is the combination of a more realistic approach to prudential regulation – the creation of credit – and more sensible sale and distribution of mortgages. All along the supply chain, it is working better.”
There have been both positive and negative short term effects of the MMR a year after its introduction, although its long term effects still remain to be unseen.
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