MMR: a vaccination for high-risk lending

For some time lenders have been ensuring that all their ducks are in a row ahead of the implementation of new rules following the Mortgage Market Review, which was a comprehensive study of all aspects of the industry. From April 26th, borrowers may find that the mortgage application process is more stringent. Rebekah Commane looks at the changes consumers could experience.

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MMR; You may have heard these three letters being bandied about in the news lately and wondered what the heck the measles, mumps and rubella vaccine has to do with the housing market.

The answer is nothing. MMR has taken on a new meaning, in the mortgage industry at least, and now stands for Mortgage Market Review; new legislation introduced by the Financial Conduct Authority (FCA – yes the mortgage world is full of acronyms).

These various new rules are imposed on lenders and impact how they assess mortgage applicants, particularly relating to affordability.

The final draft of rules was confirmed in October 2012 and lenders (banks, building societies, anyone who offers mortgages) have been preparing for the changes ever since. The new rules will officially be imposed from April 26th so any lenders who are still ironing out the final kinks will be paddling beneath the service to be ready.

While the MMR may have caused some stress to lenders, the rules are being imposed to benefit borrowers. During the height of the housing boom in 2007 some consumers were granted mortgages that they could not afford to pay back, causing immense stress and impossible debt.

It’s true that even before the rules are imposed there’s far less ‘high-risk’ lending in the industry; however, to ensure that the lending habits of the recent past aren’t repeated the FCA introduced the formal reforms to ensure that borrowers are only accepted for mortgages if they can afford to pay them back.

Yes, you have to be an adult to take out a mortgage but unfortunately even adults don’t know what’s good for them sometimes. When there’s nothing you’d love more than to own your own home, the temptation to borrow more than you can afford is understandable and if lenders accept your application it’s easy to forget that you actually have to pay the money back, with interest.

So the new regulations are there to protect consumers from themselves and to ensure that lenders don’t provide that temptation that could land borrowers in unmanageable debt.

Theoretically, MMR shouldn’t impact too much on consumers but in practice most lenders are no doubt going to be a little cautious in the first few months after its implementation. There will be quite a bit of ‘suck it and see’ for mortgage providers as they transition into the new processes.

I’d hazard a guess that the level of mortgage approvals will wane considerably in the first month or so from April 26th.
It will now be even more important to speak to a mortgage adviser before applying for a home loan as they will be able to tell you whether you should pass affordability checks and where to go for the best deals.

The importance of ensuring your credit history is intact will be further stressed ahead of your mortgage application. It’s worth getting a credit report with one of the agencies who offer this. You’ll need to make sure you’re on the electoral roll, that you have a mobile phone contract, rather than pay as you go, and that you don’t have any outstanding payments on bills.

However, don’t let any of the above put you off applying for a mortgage if you intend to. Just be aware that it may take longer for your application to be processed and affordability assessments could be tougher. But the measures are there to protect consumers from ending up in sticky financial situations, so it’s all for the best.

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