Mortgage Market Consultation CP11 - don't panic Mr Mainwaring!

Mortgage Market Review

You will have read over recent days about something called the MMR ( Mortgage Market Review) which is the FSA’s attempt , before they disappear into the sunset, at preventing a return of the risky mortgage lending seen in boom times, by ensuring that common sense standards continue to apply in future.

Below is a summary of the proposals and then , what does that actually mean in practice.

At the core of the proposals are three principles of good mortgage underwriting:

• Mortgages and loans should only be advanced where there is a reasonable expectation the customer can repay without relying on uncertain future house price rises.
• Lenders should assess affordability and this affordability assessment should allow for the possibility that interest rates might rise in future: borrowers should not enter contracts which are only affordable on the assumption that low initial interest rates will last forever;
• Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on the assumption that house prices will rise.

Key features of the proposed future regime include:

• Income will have to be verified in every mortgage application;
• Lenders do not have to consider in detail what borrowers spend but cannot ignore unavoidable bills, such as heating and council tax
• Interest-only mortgages can still be offered as long as borrowers have a credible plan to repay the capital. But relying on hopes of rising property values is not enough
• Lenders will have to consider the impact of increases in interest rates in line with current market expectations
• Some applicants, such as those trying to consolidate debts with a mortgage, will have to get advice to ensure they understand the full implications and costs;

To be fair, that which they suggest is not what one would say is ‘re-inventing the wheel’ – simply before they lend they want make sure the customer can afford it , can demonstrate their income accordingly , and that the current situation of very low rates, is not taken as the norm.

You may have been surprised that the above did not take place already – and dare one say , if we were lending our own money, we would probably do the same.

As always thanks for your attention.

Have a good Christmas everyone!