What does the Mortgage Market Review mean?
09 November 2012Coreco
There has been much to discuss in the mortgage world over the past few days with the launch of the much anticipated Mortgage Market Review from the FSA. Whilst there will always be some who say it was not harsh enough and others who bemoan the fact it is too harsh, headline grabbing apart, it really is rather sensible on the whole.
In reality, for most borrowers there will not really be much of a change from where the market is now. While all lenders have corrected themselves post-crunch and put some of these rules in place already (remember we have seen the draft plans some weeks back), these rules needed to be set in stone to prevent a recurrence of past issues in the future.
The main hope is that the very act of publishing the final rules should remove much of the uncertainty that some lenders used as an excuse for over-tightening lending criteria and I hope to even see a sensible relaxation which will allow more borrowers into the market.
As ever, the challenge will be in how lenders choose to interpret these guidelines. This, in itself, will give us all a clue as to whether lenders actually want to lend or not.
The good news is that we have already spoken to lenders who have stated that now this is out of the way they can get on with developing and releasing their new suite of products and guidelines, so expect to see new products in the offing soon.
In essence, there is no actual ban on interest only mortgages, (just a requirement to have a method of repayment in place), and no restrictions on age or set guidelines for the self-employed. In fact, the long and the short of it is that borrowers need to prove that they can afford the loan, evidence their income in a manner acceptable to the lender and show that they can actually pay it back. Sounds reasonable!
The key is around advice. Let’s face it, it was always crazy that a First Time Buyer could walk into a bank branch and come out with the biggest loan they are ever going to take out without getting any advice. So now, any mortgage transaction where human interaction is involved must be advised.
There are a couple of details around this. For example, high net worth individuals, (defined as those with a net income in excess of £300,000 per annum or net assets above £3 million), can elect to opt-out of this process, but in our experience high-net worth borrowers always appreciate the value of good advice.
Another “win” is the instant relaxation of these rules for so called “Mortgage Prisoners”, which should help to protect some of these borrowers at least from being used as a profit making tool on rising variable rates as they are unable to move elsewhere.
In other words, lenders can choose to waive the rules around interest only payments or affordability as long as there is no increase in the loan amount and there is a good track record of payments. Again interpretation and lender “hunger” is key here.
What this all means however, is that there is actually now nothing to stop lenders getting on with lending and hopefully we will start to see a sensible re-adjustment in the market, which will be good for us all.
Together with the Funding For Lending Scheme, which should keep mortgage rates low, it should be good time to finally buy or re-finance.
The Coreco Group are a leading, London-based provider of independent mortgage and financial advice. We specialise in all types of mortgages and are experts in First Time Buyer loans, complex specialist facilities and Large Mortgage Loans. As genuinely independent mortgage professionals, providing a highly personal service, Coreco are here to help you to own and protect your home. Visit their website here.
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