MortgagesSep 17 2014

MMR will improve quality of advice: Imla

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Around 71 per cent of lenders and 58 per cent of brokers believe the Mortgage Market Review will have a positive effect on consumers by improving the quality of advice they receive, as well as positively changing the awareness of mortgage affordability, a survey has revealed.

Despite this, figures from the Intermediary Mortgage Lenders Association found there are concerns over the implications on products, with 71 per cent of brokers believing MMR will have a negative impact on sourcing mortgages.

Reflecting this, the research found that 54 per cent of lenders felt it will negatively impact product innovation and limit their capacity to develop new offers.

The trade body’s survey of 390 brokers, carried out by Wriglesworth Research, found that lenders identified low income borrowers (85 per cent), borrowers with dependents (77 per cent) and self-employed or single borrowers (both 38 per cent) as those who have felt the biggest impact in terms of what they can borrow under MMR.

Almost two thirds of brokers (63 per cent) stated that significantly more borrowers are being turned down as a result of interest rate stress tests, but just 15 per cent of lenders agreed.

Both parties did agree that stress tests have had more of a direct impact on the amount consumers can borrow, compared with other changes to the MMR approval process. Of those surveyed, 79 per cent of brokers said interest rate stress tests have reduced the amount that can be borrowed, with 55 per cent in agreement.

Fewer brokers believe that more detailed income assessments (58 per cent) or evidencing requirements (42 per cent) have had a direct impact on what consumers can borrow – although the Imla stated these numbers are still significant.

As for the lenders, 45 per cent thought expenditure assessments reduced loan sizes, but fewer than 10 per cent feel evidencing requirements have had any effect.

Peter Williams, executive director for Imla, commented that MMR’s real test will come beyond the six month milestone.

“The fact that interest rate stress tests are having the biggest impact on borrowers shows they are doing their job by identifying those who would struggle to manage their repayments if rates rise.

“It may involve some short-term pain for those who can only borrow less than they were hoping, but it is a necessary move to protect their long term financial position when the inevitable rise occurs.

Mr Williams added: “Lenders are keen to balance sensible checks with the desire to find an answer to borrowers’ needs. Brokers are an integral part of the new regime and their advice is becoming increasingly valuable to match consumers to a suitable lender and product.

“Nonetheless, the available options have clearly diminished for some borrowers more than others. The spirit of innovation must be kept alive under MMR so new solutions can be offered to creditworthy consumers in a range of circumstances.”