MMR: Nearly 12 months on

Much has been made of the Mortgage Market Review over the past 12 months – yes, it is almost a year since it was implemented – in particular the increased difficulty existing and potential borrowers initially had in securing a mortgage.

John Phillips
20th March 2015
Flat for Sale

Whilst much of the criticism about MMR was probably justified in the first six months of the new regime, there has definitely been plenty of movement amongst lenders in order to, shall we say, loosen their stringent criteria recently.

Indeed, we have had lender representatives themselves admitting they probably over-egged the pudding in terms of affordability checks in those first few months in order to secure total compliance. Since then however there has been an acceptance that there was not really a need to gild the MMR lily; indeed I suspect the FCA itself has been putting some pressure on lenders to ensure they are not necessarily pushing way beyond the letter of the law.

There’s no doubting in my mind that  the MMR was necessary and, while many in the mortgage market might have raged against the machine leading up to its implementation, I doubt there were many who didn’t (perhaps begrudgingly) feel it was a necessary regulatory move. The fact is – and I think the fallout from the Credit Crunch adequately shows this – that the mortgage market had gone way too far during those pre-2007 years, to the point where actually being able to afford the mortgage became somewhat surplus to requirements.

For many lenders during that period, it was a race up the risk curve in which the most important thing was to get the loan completed, get it onto the books as quickly as possible so it could be sold as part of a securitisation just as quickly. This was ‘fill your boots’ lending on the grandest of scales and there was little sign of ‘responsible lending’ which cared about what happened to the loans once they were completed, because after all they were going to be sold and would not be the responsibility of the lender order-takers anyway.

It was therefore absolutely vital that we moved away from this way of lending and, to a very large extent, the market self-regulated in this respect up until the point of the MMR. The regulatory changes however set this in stone and, ultimately, I think the market will benefit in the long-term from this.

What is particularly positive about this new environment is that it is not stopping lenders from looking at areas which have been predominantly underserved over the past 7/8 years. I’m thinking about lending to the self-employed and contractors and lending to those with smaller deposits/equity levels in particular. In recent months we have seen more product choice in these areas and this will be especially welcoming for first-time buyer borrowers who again have not exactly had a plethora of product choice recently.

However, there are some potential clouds on the horizon and they revolve around where the market pushes to next. There has been some recent debate about the potential return of more choice in the 100% LTV market – a sector which many of us thought would never see any kind of product offering again. And let’s not overlook what might be coming over the horizon in the buy-to-let sector – a recent new entrant, Foundation Home Loans, has already announced it will lend on buy-to-let properties to those who have no residential home, and will also lend to those borrowers who have arrears/CCJs which have not yet been cleared. In the latter’s case I can’t think of any other lenders operating in these area and this appears to be a clear move up the risk curve.

In terms of 100% mortgages, I am something of a believer that the borrower should have at least some equity within the property otherwise they may not work so hard to pay their mortgage off when they can easily default and not really lose out; secondly, I think we’re all acutely aware of the potential fall-out from lending to those borrowers with adverse credit to their name even if they are currently paying it off up by the date of the application. There’s no doubting this is moving up the risk curve and I suspect, even in an unregulated market like buy-to-let, it will invite interest from a regulator who is keen not to see any repeat of the type of lending which caused so many issues during the middle of the last decade.

For agents it is a positive to know that different types of purchasers can secure a wider array of products but there should also be a sense that the entire industry has a duty to act responsibly and not put people in homes who are not best equipped to pay their mortgage and keep hold of their property. This is a marketplace which requires everyone to ‘do their duty’ and it is not the time for some stakeholders to be moving further away from the responsibilities that bind us all.

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