Known Knowns


You may have been aware via the media of the Mortgage Market Review (MMR) that has been implemented on 26th April this year. So far it looks like it’s been a seismic shift in how residential mortgages are underwritten, and will have impacts on both the amount of money that can be lent (especially to those of you with children, school fees or unsecured debts) and the time it will take to get offers out.

There have been many column inches and much airtime dedicated to this subject, but unfortunately much of it appears to be contradictory, confusing or just plain scaremongering. To give you some context, the review was effectively a post mortem into the collapse of the mortgage industry post credit crunch. The review was then followed by a number of recommendations to help stop the market falling apart once again; many of these recommendations have been taken up, and at present these are being implicated by the lenders. The main driving force of the review is to make sure that clients can afford their mortgage now and in the future, so affordability and forward stress testing is a large part of the reforms. However, no one really knows what the overall impact of MMR will be, hence the concern in the media.

Looking at the amount of contradictory information available, I felt the only appropriate way to comment on MMR was to take a leaf out of Donald Rumsfeld’s book (not a phrase I thought I’d be saying...) and use his infamous Known Knowns speech from 2002, when briefing the press about the invasion of Iraq.

Applications will take longer to process.

Known Knowns
Well, we definitely know that lenders will take longer to process applications. Nationwide have suggested it might take a client two weeks to see a branch based adviser, due to the new restrictions on their time and Woolwich are currently taking 15 working days to answer queries and assess applications. We also know that criteria is being tightened up across the board, on both buy-to-let and residential applications.

Some lenders will decline first time buyers.

BM Solutions, who are a specialist buy to let lender, are no longer accepting applications from first time buyers even when they are buying with a property owner. On the residential side, NatWest are no longer accepting guarantor applications.

Applicants will have to pass tougher criteria.

More questions will be asked by the lenders, and more evidence will be required, especially around bank statements and spending habits. Therefore expect to be quizzed closely on your budget planner and your discretionary spending.
Execution only mortgage applications will be phased out – the FCA has made it clear that advice is the way forward, and independent advice at that.

More applications will be declined.

Known Unknowns
We can expect that there will be a greater number of declines (indeed the Bank of England suggested this last week), although we do not know how many or for what reasons. It might be that lenders are so concerned about the new regulations that they decide that it is safer to declined marginal case as opposed to approve it.

Rates will go up.

There is also a suggestion that rates will increase, to cover the costs of the extra work, but again we do not know by how much or when.

Further paperwork will be required.

More cases will be sent back to brokers if they are not fully packaged, eg, they contain everything that is needed in one pack. So if a client wants to make an application, everything needs to be in that envelope, if not it will be sent back and everything is delayed. However, as of yet, we are not sure what extra items will be requested by lenders – I can guess that there will be a greater emphasis on bank statements, credit card statements, savings and general outgoings, but until lenders switch across we will cannot be certain.

Lenders will cut back on less attractive applications.

Unknown Unknowns
We just do not know the overall impact of the MMR as of yet, in terms of amount of business lenders are happy to accept, down to what extra information they will need. If I am being cynical, I would say that lenders would cut back enormously as they struggle to get to grips with the changes; and the fact that it is easier to decline and move on, as opposed to agree and then be picked up by the FCA. However, the longer this goes on and the less business that is being written the more relaxed the lenders may then become.

Unknown impact of the housing market.

The other major Unknown Unknown is the impact on the housing market. If finance is suddenly more restrictive, and offers are taking longer to get out then you would expect things to slow down (apart from the cash buyers). This could have an overall positive affect, especially in London and the South East, with the cooling of price rises. Of course, the opposite could be true and that those who need smaller mortgages, or no borrowing at all, consolidate their hold on the prime locations and everyone else is pushed further out of London.

The upshot of all of the above is you will need your independent mortgage broker more than ever. They have the expertise in cutting through the MMR red tape, and they are able to look at alternatives if the first, second or third lenders say no. At John Charcol we have 40 years experience in dealing with the many changes on the mortgage and hosing markets, and although MMR is a challenge, it’s one we can meet head on and help our clients through to buying and remortgaging.

Ultimately, Donald Rumsfeld was trying to explain the lack of WMDs found in Iraq; our Unknown Unknowns are not quite as life or death, but they still represent a leap into the unknown for all of us. And it’s best to make that leap with an experienced guide, because going it alone could be very scary.

Alistair Hargreaves
Mortgage Consultant, John Charcol