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MMR Causes Much Confusion

Written By On 23/05/2014

A chief spokesperson for the FCA says that the new regulator is somewhat puzzled by some questions and stances that are being taken by certain lenders since the MMR has been introduced.

Mortgage Market Review architect Lynda Blackwell was handed her new position as mortgage and mutuals sector manager by the Financial Conduct Authority in January of this year. Her job is to oversee the MMR and help merge the new set of rules into the current lending system.

Ms Blackwell, who formerly acted as the FCA's mortgage policy manager delivered her keynote address to brokers at the Financial Services Expo earlier in the week.

The sector manager certainly sounded utterly perplexed as she tried to comprehend mortgage application questions that are currently being asked by the lenders.

Examples of which include - how much do you spend and how frequently do you visit your hairdresser? Do you have a pet and if so, how much do you spend on their upkeep including their food? Do you entertain and if so what food and drink do you serve your dinner guests?

She commented:

I think some of the questions that were asked, we wondered why they were being asked. There may be a good reason why they were being asked - it might be that particular customer - but I think we do wonder why some of these questions are being asked.

The team at PaydayLoan123 wish we could help make sense of it too. But alas, we also have no answers as to why some loan applicants with an excellent track record of payments, are needing to jump through hoops by having to perform the new 'stress test' requirements.

Mortgage brokers are putting up with anguish, frustration and even anger from their clients, as they too are mystified why their clients are having to face the exceptionally detailed interrogation.

The FCA's new mortgage and mutuals sector manager told brokers at the Expo held in Manchester that a process of transition is meant to be allowed for and is supposed to be taken into consideration by lenders.

The initial changing over period was supposed to include different conditions for borrowers with good credit history who were just merely looking to switch mortgages from their existing ones in order to keep their expenses down.

These are the borrowers who have lived by the rules without ever having an issue or problem with repaying their debt. They are being crucified unfairly by being categorised along with everybody else.

Some brokers reveal how incredulous they are at the questions that applicants are having to answer without any consideration being taken into account for any savings they may possess - even if it amounts to a small fortune!

Ms Blackwell states categorically that the FCA never intended this new method to prevent existing flawless borrowers from being able to switch mortgages. Apparently they should not be involved in this new stricter generic affordability examination.

Many of these people are approaching or have come to the end of their mortgage term and are automatically switched to the lenders standard variable rate In most cases, that will involve costing much higher monthly premiums than they were previously paying.

The problem now is they do not have easy alternative options so they find themselves cornered. Therefore the MMR is appearing to have an adverse effect for many that are getting into the firing line through no choice of their own.

Ms Blackwell insists:

That is not what the MMR says. It is disappointing to see this happening because lenders have wanted flexibility with the transitional arrangements. In the future it would be really good to see lenders approaching this in the spirit intended and using the transitional provisions to help out those borrowers who need to move home, who want a better rate, but who find themselves trapped because of tighter criteria and stricter affordability checks.

The FCA have given the lenders instruction for certain expenses criteria that they have to drag from their clients. However, they have also been given the authority to use their own discretion in identifying which customers have to answer every pedantic detail.

There is little doubt that most people had no indication of the Mortgage Market Review coming into force and still do not fully understand it. It officially hit the UK home loan market 26th April and appears to have also taken brokers and lenders by surprise as they struggle with it themselves.

The review is obviously at the infancy stage so is therefore bound to cause many teething problems. Unfortunately, until many queries get resolved, it looks like a large part of the British public remain uneasy about the future.

Now, as if the situation isn't tough enough, the Bank of England Governor gave a property warning as he spoke about the possibility of imposing further restrictions on the lenders to help prevent a property price bubble.

Mark Carney suggested that the Bank may need to change the equation by reducing the total amount that the loan is worked out by in proportion to the income. Currently, mortgages are being offered pro rata to about four and a half times the client's total income.

Mr Carney said:

We could take steps around affordability to test whether or not individuals can afford mortgages at much higher interest rates and we could limit the amounts of certain types of mortgages that banks could undertake.

Mortgage brokers say that the MMR has already forced lenders to steer away from multiplying the mortgagor's income and scrutinise their affordability instead.