This was the month everything changed. New rules that came into force under the Mortgage Market Review have been implemented for less than a week and already it is causing fear within the market.
Under the new regime, which officially came into force officially last Saturday (26 April), lenders must undertake tough affordability assessments for all mortgage sales, the vast majority of which will now be classified as advised sales.
The checks must include “at a minimum” a thorough income check of both “committed and essential basic expenditure”, with some lenders demanding information on everything from shopping bills to future family plans.
We are all wary
Some 47 per cent of mortgage intermediaries have concerns about the impact of the mortgage market review on the availability of mortgage products, research has found.
A study published in the latest Intermediary Mortgage Lenders Association’s intermediary mortgage industry bulletin found that, of more than 1,600 brokers surveyed, almost half expressed fears over the new regulatory regime, up from just over a third (34 per cent) six months ago.
FTAdviser reported on specific adviser concerns that many lenders may be going beyond requirements to conduct more stringent affordability tests, as required by the Mortgage Market Review which comes into force on Saturday.
Natwest confirmed to FTAdviser that it is applying a tougher approach to affordability tests than that needed, with clients facing earnings assessments when moving home.
The authorities at least are seemingly hoping the new rules have longer-term effects in terms of taking the heat out of the marketBolton IFA Philip Dodds cited one case involving a couple in their 50s that are attempting to downsize their home but face having to pay a £5,500 early repayment charge to escape from their two-year fixed rate mortgage with Natwest after failing an affordability test.
This is despite the new rules specifically stating that porting a mortgage or otherwise seeking to amend a loan when moving house would not trigger the need for a new affordability test where the outstanding loan was not being increased.
Potential homebuyers are also fearful, with data from the Building Societies Assocation warning that up to 1m potential homebuyers worry they will not be able to get a mortgage under the MMR.
Data from the association warned up to 1m potential homebuyers fear they will not get a mortgage after the FCA’s mortgage market review comes into force on 26 April. Additionally, the data revealed that 29 per cent were worried about potentially higher rates ahead of the MMR.
Encouragingly, 42 per cent said they would not be affected if the base rate rose by 1 percentage point, however 14 per cent said they would struggle with their remortgage payments if the base rate rose.
This is worrying as many economists predict the base rate is set to rise in the first half of next year, following positive economic data.
Will MMR dampen demand?
Obviously much of these concerns could be teething issues that dissipate over time - but the authorities at least are seemingly hoping the new rules have longer-term effects in terms of taking the heat out of the market.
Earlier this month, the Financial Policy Committee indicated the Bank of England is on red alert amid record levels of mortgage borrowing beyond household income. The Bank of England confirmed this yesterday.
In a speech in London last night, Sir Jon Cunliffe, deputy governor, admitted it would be “dangerous” to ignore rapidly rising house prices in its strongest warning yet on the threat posed by a house price bubble, saying that if the MMR fails to slow down property prices it may be forced to step in.
Sir Jon said that the tougher affordability tests and “lender constraints” brought in under MMR should “act increasingly as a brake on momentum”. However, he added: “Other outcomes are very possible and the Financial Policy Committee will need be both vigilant and ready to act.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said yesterday that while the MMR may cause a slowdown in lending, “this is likely to be nothing more than a blip, given the pent-up demand to buy”.
Four days into the MMR, Bob Pannell, CML chief economist, said that mortgage lending is still on the increase.
He said: “There are currently no signs of significant market disruption arising from the new rules. While some mortgage lending indicators have eased back gently, this is from the very high levels of recent months.”
Can brokers still game MMR rules?
Another worry in relation to the new rules is that it will result in an increase in fraudulent applications.
Prior to the MMR, buy-to-let was an unregulated product and it still is under the new rules. Many expressed concern that this would lead to brokers submitting applications for buy-to-let mortgages for residential buyers to avoid falling foul of the tests.
Indeed evidence is emerging that prospective borrowers and unscrupulous peers would seek to ‘game’ tough new mortgage lending rules by fraudulently submitting buy-to-let mortgage applications for residential purchases.
Lloyds confirmed to FTAdviser that it has removed brokers from its panels, adding that a “proportion” may be down to buy-to-let scheme abuse. A person with knowledge of the bank’s approach told FTAdviser there has a “slight increase” in buy-to-let scheme abuse.
Leeds Building Society, NatWest Intermediary Solutions and Santander for Intermediaries all confirmed they regularly review their broker panels to ensure the correct procedures and processes are in place.
Its it just London?
Outside of the MMR-mania, the key concern remains how fast house prices are rising. The aforementioned Council of Mortgage Lenders data revealed that by the end of 2013 only property prices in London and the south-east had actually recovered to their 2007 peak.
In an article on the CML website, the trade body admitted the vast majority of the housing market - and the lending to it - that exists outside London is experiencing “nothing like the euphoric conditions” that are filling the capital’s media column inches and broadcast news at the moment.
Nationwide revealed this week the pace of house price growth picked up in April, with prices rising by 1.2 per cent during the month.
As a result of a pick up in April, Nationwide reported annual house price growth has reached double digits for the first time in four years, with the price of a typical home 10.9 per cent higher than it was in April 2013.
Furthermore,the House Price Index, released by the Office of National Statistics, revealed that a particularly high rate of house price inflation across England, at 9.7 per cent, was the main driver behind the rise in property values in the 12 months to February 2014.
This is including what the ONS called “substantial house price growth in London and the south-east”, at 17.7 per cent and 8 per cent respectively.
However, other evidence suggests it is not just in London that prices are soaring. The deputy Bank of England governor said yesterday that house prices rose by more than 5 per cent in 10 out of 12 UK regions across that year.
April best buy: David Hollingworth, London & Country Mortgages
“Woolwich two-year fixed rate at 4.99 per cent. Available up to 95 per cent LTV with no fee.
“This is not the first deal that Woolwich has offered backed by the Government Help to Buy guarantee, but it is the first two-year fixed rate, having previously only offered three and five-year products.
“That shows Woolwich’s commitment to this end of the market and the broadening of the range is very welcome. It’s particularly good timing as some other lenders including Santander and Natwest have recently increased the rates on their Help to Buy Guarantee deals.
“The Woolwich deal offers a very competitive rate for those with small deposits, nipping below 5 per cent, and that is enhanced by the fact that there is no arrangement fee. Overall a good addition to the options for those with small deposits and is bound to complement the other 95 per cent deals in Woolwich’s range.”
