The Mortgage Market Review (MMR) is imminent and the industry as a whole seems largely prepared for the new regulations. Despite this, there are still concerns among many mortgage advisers that the MMR will cause a significant increase in administrative burdens.
The main change under the MMR is that the majority of mortgage sales will need to be advised, with supporting documentation to provide audit trails and evidence transparency.
Assessing client affordability
Although the onus will ultimately be on the lender to approve affordability, they will be increasingly reliant on mortgage advisers to carry out detailed scenario planning and ‘rate shock’ tests to illustrate that a client is suitable for a specific product. Mortgage advisers will need to be fully up-to-date with lenders’ requirements to ensure that the mortgage application they submit is appropriate.
This requirement not only means that mortgage advisers need to be aware of their clients’ personal and financial circumstances, but it also requires an understanding of the current economic climate and the effect of increasing mortgage rates. While this activity is already carried out by most mortgage advisers, they will now need to provide detailed documentation to demonstrate this.
Advisers need to have adequate affordability measures in place and make sure they take into account the borrower’s net income, including any committed expenditure and the impact that a rise in interest rates may have on their mortgage repayments.
Advisers will also need to carry out detailed forward planning with clients and discuss any possible lifestyle changes that could affect affordability. Lender criteria are also susceptible to change, so advisers need to stay informed about any amendments that arise which may affect a borrower’s mortgage application.
Technology and processes
The MMR will bring about a period of adjustment and lenders and mortgage advisers will need to find the best ways of working within this new dynamic. Having the right technology in place will be hugely important in facilitating this process.
It will also streamline many admin based tasks that advisers have to comply with, allowing them to focus on what they do best: providing the best possible support for their clients, instead of diverting their time to administrative processes.
Increased time spent with clients could generate new business leads and also help to ensure that advisers are getting all the information they need from applicants.
This is likely to be well received by lenders who may begin to scrutinise the quality of mortgage advisers’ business more carefully post the MMR. Quality of applications could even be reflected in the procuration fees that firms are paid, with substandard forms receiving lower fees.
With the appropriate technology, mortgage advisers can be confident that their cases will be submitted in the right format and in a timely manner. This will be more important than ever given that an adviser’s efficiency will have a direct impact on their revenue stream and profitability.
Advisers will also need to be fully transparent and provide proof of exactly what information and documents were collated during the advice process.
Increased profitability
The MMR will require an increased level of transparency from mortgage advisers, and the challenge will be to find a cost and time effective way to meet the new regulatory requirements.
For mortgage advisers willing to adopt these new ways of working, administrative time and cost can be significantly reduced, meaning that although the MMR will increase regulation it also has the potential to increase profitability.
