May 29, 2014

Toni Smith is  sales operations director, First Complete


In the last week or so there has been reference to the fact that the MMR may help to put a cap on escalating house prices. 

While the rate of house price increases is starting to cause concern to the Bank of England and the Government, I do not feel that MMR will directly halt rising house prices, especially while the Help to Buy scheme is still in operation, although what it may do is make Help to Buy slightly less effective.

While Help to Buy makes it possible to buy a house with only a 5% deposit, MMR will of course make it harder to get a mortgage on the other 95%, or 75% if under the New Buy part of the scheme.  This might stem the uptake of housing under the scheme.

The majority of borrowers trying to take advantage of the scheme are already under pressure financially trying to raise the deposit required, so they may therefore find it much harder to pass lenders’ stress tests and affordability criteria stemming demand temporarily. 

First time buyers may also find it particularly challenging  as a single person living with their parents or in rented accommodation, may well have a higher level of discretionary spend which may not look good on a lender’s expenditure form, although common sense would dictate that usually a person reduces their discretionary spend as their obligatory outgoings increase.

The challenge with lenders’ expenditure forms is that they are a snapshot in time.  There is no way for a lender to know if someone may be about to lose their job or if they have a serious illness which may affect their future ability to pay their mortgage. 

However, all the interest rate stress testing in the world will never enable a person to pay their mortgage if they cannot work for any reason.  The only thing that will provide a guaranteed form of mortgage payment in these circumstances is a good income protection or critical illness policy.  

While some questions are hugely intrusive – there are even stories of ladies being asked if they are pregnant – there is a need for both common sense and ethically, at least the same standards to be applied to mortgage interview questions as they would be to a job interview. 

At the moment there is still relatively little knowledge that the MMR has occurred.  Far more people know about the Help to Buy scheme than they do about the mortgage market review and what it will mean for them personally. 

The first most consumers will find out about what the MMR means for them will be when they go for a mortgage interview as a result it will do little to dampen demand for housing and remortgages.

That might have a bigger effect in the very short term, will be the competitiveness of mortgage rates as lenders get to grips with the new underwriting requirements. 

It could well be that we see rates made less competitive or products pulled as some lenders struggle to get to grips with the additional time it takes to underwrite a mortgage. 

While this may slow the mortgage market down for a while in terms of the number of housing transactions, it is unlikely to have a long term effect and it presents a great opportunity for the smaller lenders which are more nimble and can even manually underwrite a case if they need to due to their smaller volumes.


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