New rules for mortgage lenders and advisers, which came about through the Mortgage Market Review (MMR), will come into effect on 26 April 2014.
Lenders have full responsibility for checking if borrowers can afford the mortgage they are taking out, meaning all mortgage applicants must provide evidence of their income. Lenders themselves will have to verify the customer’s income, even where an intermediaries is used.
Lenders must also consider whether a borrower will be able to afford expected interest rate rises in coming years. This is to stop people taking out a home loan they can only afford while interest rates are low, as they are now.
For intermediaries, the Mortgage Market Review means the removal of the requirement to assess affordability and the end of the non-advised sales process.
Most interactive sales - for example, face to face or telephone - will now be considered to be advised for regulatory purposes.
Phil Cliff, director of mortgages for Santander for Intermediaries, says advisers should undertake a full fact find and recommend a suitable product based on the needs and circumstances of their client.
Ray Boulger, senior technical manager of John Charcol, says the mortgage has to match the client’s requirements and clearly it is important to make sure the client understands the main risk factors such as the early repayment charges - especially if they apply for the whole fixed rate term - as well as the risk of interest rates falling.
Mr Boulger says this is no different to making sure a client understands the risks of choosing a variable rate mortgage or a shorter-term fixed rate.
He says: “Those risks are different but the principle is the same.”
David Hollingworth, associate director of London & Country Mortgages, says long-term fixed rate mortgages are a useful product.
He says: “Brokers would not want that option of a longer-term fixed rate removed from their toolkit. It is just about bringing it to borrowers’ attention. There is an upside that needs to be considered.”
