16 October, 2014
Six months is a long time in most industries, but it's flown by pretty quickly for firms in the property sector. It's hard to believe, but that's actually how long it has been since the Mortgage Market Review (MMR) was implemented, and while the changes were introduced with a clear plan in mind, it was impossible to say back then how buyers, sellers and businesses would be impacted.
First, what is the Mortgage Market Review?
Carried out in April, the MMR was a detailed review of the mortgage industry. It was the idea of The Financial Conduct Authority (FCA), which decided that property loans were being mis-sold due to a lack of checks, and that buyers had, as a result, been losing out since 2007.
The overhaul saw a number of changes made, with mortgage providers required to have certain qualifications and lenders responsible for checking whether applicants are genuinely able to afford the loans for which they ask. The provision of interest-only loans is also governed by much stricter rules.
Understandably, the review was seen as a positive move for buyers, but how exactly has it played out? What has actually changed?
For a start, most of the figures released since April suggest that the FCA has achieved at least part of what it set out to, with the market showing numerous signs of improvement.
Data from e.surv, for instance, shows that last July was the strongest since 2007 in terms of house purchase lending, with 66,279 approvals recorded. The average loan-to-value rate has also shown growth, reaching 62.6 per cent during the same month - a rise of 2.6 per cent on last year's figures.
When the changes were first announced, it was undoubtedly first-time buyers who were keeping their ears closest to the ground, and understandably so. The concern has been realised in some ways, with the availability of cheap housing stock steadily declining. An increased willingness among banks to help high loan-to-value applicants has gone some way to provide a balance, however, thus ensuring the first-timer market remains buoyant.
It's become apparent that low-income buyers have been hardest by the MMR, along with those with dependents. One of the biggest changes was the introduction of new interest rate stress tests. These interviews, often lasting three hours or longer, involve the lender questioning applicants in detail to find out about their spending habits. The idea of this is to ensure applicants aren't borrowing money they can't afford, though some have argued that it's gone a little far.
With surveys suggesting that some lenders are actually being too careful - turning potential buyers away unnecessarily - the FCA has expressed its own concern that its guidelines have been misinterpreted in some parts of the industry. In an attempt to iron out these issues, the group plans to review its overhaul later in the year. During this process, it will assess the impact of the unintended consequences that have become apparent in the past six months.