After five years in the making, the mortgage market review has arrived.
New affordability checks have been introduced alongside a ban on non-advised mortgage sales which has forced lenders to invest in training for in-house staff. The changes have prompted some to suggest we could see lenders preparing to hand chunks of business over to brokers.
Money Marketing has spoken to brokers about MMR implementation, how it has been handled and whether the FCA will achieve its desired ultimate outcome – a fairer and more stable mortgage market for the UK.
In the short-term, brokers feel the new regulations will create a more arduous process for mortgage applicants.
Your Mortgage Decisions director Dominik Lipnicki says: “Initially the longer application process will be an obstruction to borrowers, which can only be negative. But taking a longer-term view, the MMR will provide borrowers with greater protection.”
John Charcol senior technical manager Ray Boulger says the true success of MMR will be hard to measure until the changes have bedded in.
He says: “Consumer outcomes will be adversely affected for the first few months at least, while teething problems are ironed out. After two or three months we will be in a better position to understand how it has worked, and the FCA has already said it will conduct a review six months in.”
Perception Finance managing director David Sheppard is unconvinced the MMR will deliver on its intended outcomes.
Sheppard says: “A lot of people will be unable to get a mortgage for the level they would like and this may drive down prices, or only allow the select few to buy.
“Clients are having to jump through a lot of hoops to get a mortgage, only to lose out to an overseas cash buyer. Is this really what the FCA want? I doubt that very much.”
Speaking at a press brief at the regulator’s Canary Wharf offices in London last week, FCA director of mortgages and consumer lending Linda Woodall said: “We will do some post-implementation testing and we are scoping that as we speak. It will be later in the year before we give effect to that, just to allow the obvious changes and developments in systems to be taken place.”
Broker market share
Brokers are optimistic the non-advised sales ban will mean they will play a more significant role in the market post-MMR.
Sheppard says: I think broker business will increase and I can see it going to about 70 per cent to 80 per cent of the market.”
Lipnicki agrees brokers will see their share of the market grow.
He says: “In the medium-term, of course brokers’ share of the market will go up. Preparation is really the key here – brokers who have been getting ready for MMR over the last year will be taking on the greatest share simply by virtue of the fact that they have the capacity and are ready for the changes.”
Boulger adds: “The only question around broker share of the market is how much it will go up by. Capacity will be crucial. We can see firms are trying to ramp up their staff levels but we need to make sure the right quality of people are joining and the right level of service is being provided. The volume of business is certainly there for brokers.”
Asked by Money Marketing about the growth of non-advised sales channels, Woodall said: “Clearly, there will be an upturn in the use of intermediaries and we know some lenders have significantly increased their own adviser numbers and have had to train them.
The affordability checks will mean borrowers may have to discuss their spending patterns in minute detail, and potentially have to forecast future changes to their income. Brokers say some lenders have gone too far in their requirements.
Lipnicki says: “We have seen case criteria being changed retrospectively based on the new changes and each lender seems to interpret the rules differently. Can we not have the same budget planners across the board? Why are some lenders asking what you spend on particular items while some include everything under the banner of general shopping?”
Boulger says some lenders have not done enough to communicate the changes in their criteria to brokers.
He says: “I do not think there has been a problem with the timeliness of the updates, but I would have liked more detailed information on the actual changes being made. It is one thing to say ‘we will be MMR-compliant by this date’ but we need to know the extent of the changes.”
Lipnicki says smaller lenders in particular have not been efficient in updating the market about MMR changes.
“We as brokers will play a bigger role going forward and I do not think too many lenders will want to lag behind when it comes to communicating with us.”
Impact on lending
The Council of Mortgage Lenders has forecast gross lending will hit £195bn this year, while the Intermediary Mortgage Lenders Associations believes lending levels could reach up to £220bn this year before getting up to £240bn next year.
Woodall does not expect the MMR to curtail the market drastically. She said: “We are not seeing evidence of declines in lending. From what we are seeing, mortgage lending is continuing to increase. I think the MMR will take the froth off the market but I do not think the MMR will be the cause of a fall in mortgage lending.”
Expert view: Paul Smee
The introduction of the MMR is set to bring the largest change to how the mortgage market works in over a decade. The industry has shown it is ready, and we anticipate a smooth transition into the new framework. We hope and expect the new rules will provide a robust and stable framework for the long-term. We hope any transition issues can be managed in a way which minimises their impact on the borrower.
The industry does not anticipate major problems with the MMR implementation, but there is still a potential for unintended consequences due to the complexity of rules, but certainly not due to the inattention of the regulator or industry. We hope the regulator understands the scale of the change and exercises a degree of patience regarding unintended technical breaches in the beginning.
Paul Smee is director general at the Council of Mortgage Lenders