ROB CLIFFORD: It’s all change with MMR
Rob Clifford is chief executive of Century 21 UK and group commercial director at Shepherd Direct Group
It’s patently obvious that the acronym MMR is going to dominate many peoples’ thoughts and conversations over the next few months.
This is not just a set of regulatory changes that will mean ‘business as usual’ for the industry following the implementation date of 26th April but it will mean a new ‘normal’ is established and, given the scale of the changes lenders have had to adopt, there are also likely to be some (perhaps considerable) challenges to overcome.
As far as the broker market is concerned however there is plenty of good news to bask in.
Firstly, the changes explicitly required of brokers have been minimal – this has not been the mortgage market’s equivalent of the Retail Distribution Review that effectively drew a line in the sand for IFAs which many did not have the capacity or inclination to cross.
The number of broker firms who will choose not to trade post-MMR will be extremely low and, from what the FCA tells us, these firms are not conducting great volumes of business in any case.
Another positive is that lenders have had some time to prepare for the discontinuity and while for some there have been substantial measures to introduce – for example, affordability assessment techniques, moving sellers to an advised model, delivering the appropriate stress-testing and so on – it appears that most lenders have got to where they want to be, have been able to introduce the changes in recent times and will be turning on their MMR compliance ahead of the statutory date.
Clearly we won’t know how successful these systems and processes are until they begin operating at full pelt in a normal trading environment. One thing seems certain and that is lenders are likely to pull back slightly from their pre-MMR lending appetites in order to make sure their underwriting teams are not inundated at the same time as new systems go live.
Brokers need to expect some lender turbulence and may feel it wise to communicate to clients (particularly those who have secured a mortgage pre-MMR) that the process is likely to take longer and to expect more detailed requests from the lender, particularly in respect of income and expenditure.
It has already hit the mainstream media’s radar that potential borrowers are now going to need to provide detailed information on, for example, their childcare costs, how much they spend on commuting and so on: a deliberately more intrusive approach.
It is a good first move by the FCA that it is publishing a customer factsheet which can be provided to clients outlining exactly what to expect from this new mortgage assessment regime.
Brokers will no doubt stock up on copies of this leaflet and provide it to clients as an integral part of the provision of advice and manage customer expectations.
The industry may experience a market lull during the spring but there is no denying that most lenders will intend to make up for lost time when their systems are fully validated and settled.
And it will be the intermediary sector that looks set to benefit most.
The changes lenders have had to introduce in retail branches means it will now take substantially longer for branch staff to go through the mortgage sales and application process.
A number of branch-based lenders recently commented that they only expect their staff to be able to complete half of the mortgages they did pre-MMR.
This leaves a shortfall of capacity for brokers to think about grabbing.
Indeed, some smaller lenders are not moving to an advised model and will consequently move to 100% intermediary distribution.
MMR carries much positive news for brokers and it means that advisers could be able to cherry-pick high quality, lucrative business where they may not have been able to do this in the past.
It will be interesting to see whether those lenders who have steered clear of, or relied less on, intermediary business until this point will also have to turn to the intermediary market in order to maintain market share or achieve growth.
All in all, it is now up to brokers to communicate effectively with clients, get acquainted with lenders’ changing requirements, but also grasp the nettle of opportunity that I’m sure will be delivered by this regulatory change.