Looking for a new mortgage deal? Don’t delay!

The Mortgage Market Review means that the application process could take a bit longer than a year ago but with the Bank of England base rate predicted to rise next year, now is the time to start looking. Rebekah Commane explains why.

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The annual Building Societies Association (BSA) conference took place in Manchester in May and, unsurprisingly, one of the main topics up for discussion was the recently introduced Mortgage Market Review (MMR).

In layman’s terms, the MMR is new legislation introduced by the FCA (Financial Conduct Authority) to further regulate the mortgage lending industry and ensure that all lenders are only offering home loans to those who have proved they can afford it by passing a more rigorous set of criteria.

Preparation
Prior to the implementation of the new rules on April 26 last, lenders had been vigilantly preparing to make sure they were ready for it and that they would experience a smooth transition.

The media as a collective has been criticised by some for scaremongering consumers regarding MMR, persuading them that it will be nigh on impossible to secure a mortgage now that MMR has come into effect.

The fact of the matter is, it may be a little tougher considering affordability checks will be more stringent but, as I’ve pointed out before, the criteria has been introduced to protect borrowers and ensure that they are not being accepted for mortgages that they can’t pay back, so if you can’t get a mortgage following the MMR introduction, you probably shouldn’t have been granted one before it was brought in either.

Having spoken to several lenders at the BSA conference it became apparent that, for several, business has dropped off in the weeks since April 26 but most had anticipated this in the early days.

And you can see why. It’s understandable that many borrowers don’t want to be the first to approach lenders and want to wait until any kinks in the MMR armour are ironed out before they put themselves up for scrutiny.

The fact of the matter is, since the final draft of the new rules were first unveiled in October 2012, lenders have been gradually introducing the measures, meaning that many were used to the practice of vetting applicants by MMR standards.

Approvals
In actuality, mortgage approvals for March, a month prior to the official launch date of MMR, fell to 11.9 per cent from January of this year.

As much as regulation can be difficult, costly and time consuming to implement, resulting in mortgage borrowers being put through an increasingly intense application process, it is better than the alternative; another property crash quietly building up over the years, leaving homeowners struggling to make ends meet and, in some cases, repossession, undoing all the hard work the industry has put into recovery.

Interest rates
Another factor on the minds of current and would-be mortgage borrowers is the potential rise in interest rates that could happen sooner than expected.

After the Bank of England continued to delay any rise in rates, even after the number of unemployed UK residents fell to the targeted 7 per cent, the government decided to hold off on an interest rate rise and industry commentators estimated that increases would begin in the next year or so.

However, economists are now suggesting that interest rates, currently standing at a record low of 0.5 per cent, will rise to at least 1 per cent in 2015 and possibly to 1.75 per cent by the end of that year, as the economy continues to recover.

When this happens, a considerable number of UK homeowners on variable mortgage rates could experience a sharp increase in their monthly payments.

With the predicted rise in rates around the corner, many borrowers who are approved to do so are moving on to fixed rate mortgages, meaning that they will know exactly how much they are going to pay each month, regardless of base rate fluctuations.

However, fixed rate prices are steadily increasing as lenders predict their popularity with the rise in interest rates drawing closer, so if you are considering moving from a tracker or standard variable rate mortgage to a fixed deal, do so now, rather than later.

Basically, if you are looking to get a new mortgage deal you will need to allow extra time as it will most likely take longer than it did a year ago, thanks to MMR. It would also be wise to do so before the base rate rises. In short, get the finger out!

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