MortgagesJul 23 2015

Review of the MMR

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Review of the MMR

The UK mortgage market is like a patient being administered a series of drugs to cure his ailments, says the Intermediary Mortgage Lenders Association (Imla) in its latest report. However, the doctors – the regulators – do not know what cumulative effect the different drugs – the regulatory initiatives – will have. The Association asks, “what is the full impact of the cocktail of measures either in place now or soon to be in place?”

In posing such questions Imla is taking a high level view, but the practical experience of the new regulatory regime from the mortgage adviser’s perspective is that things have settled down. Initially there were teething problems in the MMR implementation that led to longer mortgage transaction processing times, but these appear to have been ironed out. Pointing to the price war being waged among lenders, Brian Murphy, Head of Lending at Mortgage Advice Bureau, says that, while price matters, lenders’ service and policy criteria are also important.

He says that issues around technology have been sorted quickly and as lenders have become more familiar with the new systems, processes have got quicker and poor levels of service have largely been addressed. Alan Lakey, Principal of Highclere Financial Services, agrees that there has been improvement, but notes that transaction processing times are not back to pre-MMR levels.

Lenders loosen up

Both advisers believe that lenders are beginning to ask whether the pendulum has swung too far to the side of caution and have begun to loosen some of the tight criteria adopted when the MMR was first implemented. “No one is letting down the drawbridge to do anything risky,” says Mr Murphy, “but we’ve definitely seen a slackening of the overly cautious approach lenders first took when the MMR was introduced.” He suggests that many lenders are looking at their policies, looking at the profile of borrowers they’re getting and wondering why they appear to have lost some of their more traditional customers. He says that sometimes it is just because of a specific policy or restriction they may have in their criteria that simply needs to be tweaked.

Mr Lakey complains, however, that some lenders are still asking for unnecessary information and that others have “service” issues. He also points to quirks with lenders’ affordability calculators, saying one lender’s system calculates a higher loan amount if the applicant answers ‘yes’ when asked if they have found a property, rather than saying ‘no’.

Mortgage prisoners also remain an issue. Mr Murphy describes them as by far the most frustrating aspect of the MMR. He says they can be borrowers with good track records, who have never been in arrears, on an unattractive SVR or revert rate. They know their lender is offering more attractive rates, are not looking to increase their borrowing, and simply want to move on to a lower rate. However, the lender is refusing because according to its new criteria the mortgage is unaffordable – even though the borrower is paying a higher rate and a switch would save them money.

He says that lenders such as Ipswich, Melton Mowbray, National Counties, Hinckley and Rugby – all of whom lend through brokers – have sought to step into the breach with a proactive approach to using the transition rules for borrowers who wish to switch. But he concedes that these are relatively small players and there is only so much they can do. They have limited resources and will not be able to solve the woes of every mortgage prisoner.

Even where a borrower meets all the criteria and ticks all the boxes, the new rules may still work against them. The FPC decision to limit the amount of loans individual lenders made to customers borrowing 4.5 times income (to a maximum of 15 per cent of new lending) could leave consumers with a shrinking pool of smaller lenders to choose from especially as the bigger players hit maximum capacity.

The Graph shows the number of house purchase loans on a monthly basis from April 2012 to April 2015. Although the perception is that MMR implementation slowed things down in the first quarter of 2014, when it was introduced, there does not appear to be any significant drop in the number of loans at the time.

Back in 2014 the FCA promised consumer research, mystery shopping and visits to firms designed to discover whether lenders and advisers were delivering the right outcomes for consumers. It says it is working on two sets of thematic work, one to do with advice and distribution – which is due in a matter of weeks – and the second on responsible lending. Presumably when they appear, they are likely to address some of the issues raised by Imla.