Moody’s Weekly Credit Outlook said the long-term outlook for the mortgage market under the FSA’s Mortgage Market Review (MMR) proposals was positive, given that the stricter affordability checks mortgage borrowers will have to undergo will ensure that the quality of their mortgage portfolios will improve.

Each lender’s tests on affordability and verification of income form an integral part of Moody’s analysis and it believes the tougher tests, when enforced and monitored through better regulation, will lead to decrease lenders’ lifetime losses.

However, the short-term consequences will be harshly felt, with the FSA’s proposals likely to increase mortgage lenders’ costs, reduce the number of eligible borrowers and limit how much they can borrow.

Moody’s said that the reduction of funding in the short-term will hit house prices and compress both lending volumes and margins.

Moody’s concluded: “We see a two-fold impact stemming from the FSA proposals on the mortgage market: reduced loan generation and borrowing activity in the short to medium term, and improved quality of new origination and eventually a positive impact on mortgage losses in the longer term.”

Sponsored

Aldermore Insights with Jon Cooper: Edition 9 – Why lending strategy is becoming more central in buy to let

Sponsored by Aldermore