Godfrey Blight is a director at Crown Mortgage Management
There were clear messages coming from the lenders attending the CML’s ‘Life after the MMR Conference’ last week.
April 26 2014 was a gentle and smooth landing from the lenders perspective certainly nothing like M Day. Business continued uninterrupted there was no Armageddon! Well thought out contingencies plans which were diligently prepared were quickly shelved. The biggest worry being the lack of problems and complaints disturbing those ready to leap into action!
Life it appears has clearly settled into the new norm. With acceptances that mortgage interviews will now take a lot longer, often there is more than one interview required and customers are scrambling together the supporting documentation now needed. It was estimated that enhanced affordability tests now turn away 5% of customers previously accepted. Stress testing with rates as they are is proving benign but will likely prove a challenge as rates rise and may increase that number.
So this is the new norm. The fact that customers will be better advised and mitigated against future problems as rates rise should be greeted as positive by all. The major negative is that there seems to be an immediate need for a relaxation from the Regulators to permit the delivery of a form of an execution only solution for existing customers making mid-term alterations to their mortgages eg further advance, transfer of equity, or change of repayment type. These are buy and large financially aware consumers, who know what they want and are expressing frustrations at the depth of the process. From the lenders perspective most of them seem to have under estimated the “whilst we are at it can I just …” impact of multiple changes being requested simultaneously. It appears automation would be a benefit all round.
What also is coming clear from those who operate in the intermediary market is that those customers are feeding back a wide range of inconsistency from lenders with the regards to the interpretation of the MMR with regard to the application of the affordability rules.
There are and have always been many different clients’, all with different circumstances with regard to type, nature and makeup of income. In today’s modern world we have a multitude of different and flexible earning structures. It’s not just a salary and a job for life. We have more self-employed, contract workers, zero hours contracts, people with more than one job, investment income, flexible benefits and working patterns. It cannot be a one size fits all solution!
So not surprisingly the treatment of these different customers is now varying lender to lender with the amounts they can borrow. This raises a new question about the role of the intermediary and outcome of the advice process. Buying a new home is a transaction mostly driven by a motion, everyone has a positive outlook as to how their future circumstances will improve and therefore over time their perfect home become more affordable.
So will the role of the intermediary shift focus? What is best advice? Get the home you need you desire or not? Is it a case of best product or maximising borrowing potential? I have a feeling that the process will adapt the become a search for the mortgage that will maximise the customers borrowing potential as opposed to scouring the market for the best product for the customers circumstances. It could be argued that this has always been part of the consideration but always the first attraction has been the day one rate therefore minimizing outgoings maximising affordability in the world of simple income multiples. I think the new norm will mean shift of focus and intermediaries will need to have extensive knowledge of each lenders application of the affordability rules to continue to meet the demands of their clients. No longer can we just rely on rate tables or sourcing systems to highlight the best product!