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MMR could lead to bigger loans

Borrowers could have access to bigger loans as new mortgage rules force lenders to ditch income multiples and use affordability assessments, experts believe.

The mortgage market review will end the practice of some lenders, mainly building societies, underwriting on the basis of income multiples.

The MMR comes into force on 26 April and will impose tougher affordability checks and income verification requirements.

Last month, brokers expressed shock at the “forensic” level of detail required in Kensington’s new expenditure forms.

But rather than resulting in smaller loan sizes, experts believe the MMR could actually lead to bigger mortgages for some borrowers.

Building Societies Association head of mortgage policy Paul Broadhead says: “There is a shift to affordability among all building societies. They will continue to communicate through the use of income multiples, so intermediaries and borrowers know ballpark figures, but in terms of actual underwriting it will be affordability.

“It means if you live a fairly prudent lifestyle then it could lead to more generous loan sizes.”

John Charcol senior technical manager Ray Boulger agrees. He says: “For people without many financial commitments the MMR could lead to bigger loans.

“If a lender has been using income multiples and is now moving to affordability then, even taking into account other expenditure, they may have a larger maximum loan. Those who end up with a lower loan will have a lot of other financial commitments.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Grey Haired Underwriter 21st March 2014 at 10:20 am

    It’s amazing that this has only just come to light as we have been struggling to make the affordability calculator more prudent. The fact is that single people on large London Incomes will be able to borrow large sums of money (and I mean much larger than currently) which will only add to the potential for a ‘bubble’. Interestingly families with children will find they can borrow less than before because of the way the system is set up. Some lower income applicants will find that the affordability says ‘no’ to any amount of money. I am all for prudential lending but the FCA have really ‘cocked it up’ this time.

  2. The Cynical Broker 21st March 2014 at 2:57 pm

    Of course they’ve ‘cocked it up’, they’re the FCA and knee jerk reactions are what they do best ! The FSA sat and did done nothing while the previous market overheated, then crashed and burned, so the new regulator has to be the polar opposite ! They’re trying to take any human element out of the whole lending equation which is a recipe for another disaster !

  3. on one day, in one month, of one year a lender has to calculate your ability to pay a 25 year product. nuff said.

  4. The Cynical Broker 21st March 2014 at 5:02 pm

    And the case is “stress tested” based upon 3.5% over the lenders SVR! So they look at the worse case scenario without any factoring in of improvement in the borrowers circumstances! You really couldn’t make it up if you tried !

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