Discussions with intermediaries about life under the new rules have unearthed several common themes.
Some are expected to improve as the months roll on while others seem to be running counter to the culture of the MMR.
Mortgage Solutions asked brokers to be candid about their concerns over lenders’ interpretations of the rules, the knock-on effects of the MMR and the realities of those initial fears.
Making it fit
Buying a house is an emotional experience and faced with the prospect of losing a dream home, prospective buyers are prone to making short-sighted or desperate decisions.
Buildings insurance is the only compulsory insurance which a mortgage lender requires a borrower to have.
For that reason brokers have noted a rise in instances where borrowers have cancelled health insurance, income protection and critical illness policies to make the loan fit a lender’s affordability model.
Brokers are not advising borrowers to do this and would counsel to the contrary there is little they can do to stop it from happening.
An increasingly commonplace interaction between the lender and the broker is ‘the deal’.
The applicant applies for the loan over one term but following the lender’s internal affordability assessment is offered a deal over a different term. In some cases stretched over an additional 10 years.
Having already spent some weeks going through the mortgage process the applicants will have formed an attachment to the property and will be less likely to turn the deal down.
The result sees the applicant saddled with a debt a lot longer than they had wished at a higher overall cost.
Mortgage interview times
As far as intermediaries are concerned the noise about elongated interview times was exactly that – just noise.
In depth fact finding exercises have been common practice for some time.
The more detailed affordability checks have added around ten minutes to each interview but in the case of purchases some buyers are being more cautious than before.
Having read in the consumer press that obtaining a mortgage will be a tougher prospect, buyers are approaching an adviser before they have found a home to go through the interview process.
Havimng found a property the applicants are returning for a second interview to amend any details which may have changed.
Rebuilding corporate intelligence
Knowing the nuances of a lender which not printed in its published criteria is the mark of a good broker. Relearning the unwritten rules is taking time; adding to the overall length of the process.
Lenders are taking very different stances over klending into retirement, for example, which many brokers are finding difficult to navigate.
The MMR states that if a mortgage term extends beyond the applicant’s expected retirement age a firm should take a ‘prudent and proportionate approach’ to assessing the applicant’s income beyond that date.
But lenders have differing views on what is proportionate which brokers believe should be brought more in line.
Some lenders are asking to see proof of pension contributions at the outset regardless of the applicant’s age.
For example a 35-year old couple applying for a 30-year mortgage are being asked by some lenders to supply documentary evidence of contributions. Others do not require this until five or ten years before the planned retirement age.
Lenders are treating the assessment of outgoings differently and not all statements are scrutinised.
Some lenders are using the Office of National Statistics average household outgoings while others are lifting them, line-by-line, from the statements. In some cases a six month history is required of all the applicant’s accounts, so it’s a case of getting to know who does what.
For help on how to assess bank statements like an underwriter read Mortgage Solutions special feature.
Service charge and ground rent
Service charge and ground rent costs could trip up potential buyers.
New-build flats with a concierge and swimming pool come with an expensive monthly outlay. These costs were not taken into account in the past but will now be included in an applicant’s monthly outgoings.
When a buyer approaches a broker without a property in mind it means the agreement in principle is based on many assumptions.
Estate agents are not always forthcoming about the service charge and ground rent before the prospective buyer visits the apartment. Brokers who encountered this problem are advising the applicant to ask the agent for details upfront. This allows the broker to amend the AIP and avoid disappointment if it falls outside their budget.
To find out more from industry experts on the effects on the MMR read Council of Mortgage Lenders’ Sue Anderson’s thoughts on whether the new rules are workable and Toni Smith of First Complete’s views on lenders’ secret stress testing.
