Lenders are responsible for verifying all income and ensuring consumers are able to afford the mortgage loan by taking into account all other foreseen expenditure.
While this may seem logical when written down, Martin Reynolds, chief executive of SimplyBiz Mortgages, says it will be a substantial shift compared to the current rules.
He says lenders will have to make changes to a number of their procedures and systems to accommodate the new rules. However, the day-to-day interaction between lenders and advisers will not change too much from the current position, Mr Reynolds adds.
“What has to change is the type of information that lenders need to satisfy themselves of income and affordability.
“The ongoing relationship between lenders and advisers and how they satisfy themselves in relation to know your broker requirements may mean an uplift in initial due diligence of a firm prior to their addition to the lenders panel and additional ongoing monitoring of the quality of business submitted.”
But Laurence Baxter, head of policy and research at the Chartered Insurance Institute, disagrees with Mr Reynolds on the effects for adviser-provider relations, saying the rules will significantly affect the future of mortgage regulation and change how advisers work with lenders.
Mr Baxter says: “The broadening of advised sales to include any customer-seller interaction, combined with the scrapping of the non-advised category, is already resulting in lenders increasing their in-house advice capacity.
“Meanwhile removing the allowance for execution-only for certain higher risk products such as sale and rent back and equity release will result in more specialised brokers forming - and advisers increasing their offerings and expertise in these areas.”
When a sale is advised - and what this means
The biggest change that consumers will see is high street banks and building societies will have to change the way they approach arranging mortgages for their customers post-MMR.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, says lenders must ensure that there staff are qualified and competent to provide ‘advice’.
David Hollingworth, associate director of London & Country Mortgages, agrees the biggest change coming with MMR is the need for mortgage lenders to give advice as part of the mortgage sales process.
With many only currently offering ‘information’ on their products, Mr Hollingworth says this marks a significant change for lenders and poses a challenge in upskilling existing staff to be able to provide advice.
“It is still possible for there to be execution-only sales but as soon as there is any interaction with the client then it should become an advised sale. In practice that will mean that lenders will in most cases have to provide advice.
“The need to assess the affordability will ultimately be the responsibility of the lender, although the adviser will of course be expected to assess the suitability and plausibility of a case.