It will take a while longer yet for things to settle down and the real impact of MMR to be reflected in the mortgage market.
We have seen a slowdown in mortgage approvals over the last four months but despite this, the brokers I have spoken to recently have never been so busy and whilst accepting they are finding process times and the administration a challenge, good volumes of business are being written in this channel.
I suspect it is the direct channels that are suffering, especially telephony. It will therefore be interesting to see the channel split of business for the third quarter completion figures.
Mark Carney’s loan-to-income cap may help slowdown the availability of mortgage funding in central London and it can also be seen as a shot across the bows of the mortgage market. A clear signal the Bank of England is paying closer attention to what we are lending on to ensure we don’t go back to pre-credit crunch lending.
What might be more interesting is the increase in stress testing to 3%. Lenders will have already built their models and be working with the previous 1% increase. I suspect many have been using a higher rate anyway so the impact should be negligible.
However some of the lenders who currently have high reversionary rates including standard variable rates might get caught out with this increase if they were applying the stress test to their standard variable rate.
An SVR of 6% would need to be stress tested at a minimum of 7% under the new guidelines so that minimum rate would now need to be set at 9%. This might not be a bad thing as those lenders with higher variable rates might be less reluctant to pass on the rate increase once the Bank of England starts to increase the bank base rate.
David Copland is director of mortgage services at LSL
