Mortgages  

Most buyers clueless about MMR rules: survey

Most buyers clueless about MMR rules: survey

Two-thirds of potential house buyers have been left in the dark about the new mortgage rules which were introduced last year, according to lender and broker Ocean Finance.

A survey of 2,039 UK adults at the end of August found that 31 per cent of people who plan to buy a property within the next two years were unaware of the Mortgage Market Review, with a further 35 per cent saying they did know but felt confused by the new rules.

The changes by the Financial Conduct Authority in April 2014 meant lenders must take additional steps to ensure borrowers only get a mortgage they can afford.

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In practice, this has meant borrowers face increased scrutiny about their incomes and expenditure, yet 70 per cent of those questioned were unaware that lenders are required to look closely at their spending.

Consequently, a quarter said they have not changed their spending habits to help them qualify for a mortgage.

Of those who did know that lenders are required to examine spending, more than a fifth stopped contributing to life assurance and pensions to keep a greater proportion of their income in their bank accounts.

Just a quarter of aspiring homebuyers questioned were aware that the new rules also test their ability to afford a mortgage if interest rates rise and even fewer people (16 per cent) knew that the rules would also test their ability to withstand changes to their personal circumstances.

To help de-mystify the new rules and ensure they are prepared to apply for a mortgage, almost a fifth of potential buyers have sought advice from an independent mortgage broker.

Almost 30 per cent have looked online for information about the rules and 14 per cent relied on their friends or family for advice.

Ocean Finance added that worryingly, a third have not sought any advice on applying for a mortgage.

Gareth Shilton, a director at Ocean, said that a large chunk of people who are gearing-up to apply for a home loan are not even aware that the mortgage rules have changed.

“As an industry, we need to do more to educate buyers and to guide them through a process which many people are finding understandably daunting.

“For anyone who plans to apply for a mortgage in the next year, it’s key that their finances are in order, including checking their credit file and gathering all their paperwork early to show as evidence.

“They would also be wise to cut back on non-essential spending such as takeaways and subscriptions, and to ensure that bills are paid on time so they demonstrate that they can consistently live within their means and stick to a budget,” he added.

peter.walker@ft.com