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On the 26th April 2014 the new Mortgage Market Review changes came into effect. this is the biggest change to the way mortgages are sold for more than 10 years and transforms the way that people get a mortgage.
The MMR started with a discussion paper in 2009 and was consulted on for over four years. The aim of the review was to implement changes to create a mortgage market that worked better for consumers and that is sustainable for all participants. Throughout the consultation process TCFInfo has offered users the opportunity to ‘join the debate’ through our regular industry surveys. In total we delivered the collective results of 2697 questionnaires to the FSA on their proposals and this feedback was recognised in the paper they published.
The rules that are key to advisers are:
- The removal of the non-advised sales process.
- Almost all interactive sales, including face to face, telephone and other remote sales now need to be advised.
- An 'execution only' sales process is only permitted for non-interactive sales for example some internet and postal, and a ‘simple’ product switch where there is no change to the outstanding amount and the borrower has not been steered to a certain product certain qualifying groups such as high net worth individuals and mortgage advisers.
- Every seller required to hold a relevant mortgage qualification.
- It will no longer be compulsory to provide customers with an Initial Disclosure Document (but firms can continue to do this if they want to). Instead, certain key messages about a firm’s service must be given to customers. These include any limitations to the range of products offered and how the firm will be remunerated.
- Fees relating to the mortgage must not be automatically rolled up into the loan, the customer must elect for this to happen.
- The Key Facts Illustration will not have to be given every time the firm provides the customer with information about a product that is specific to them. Instead, it will only be required where a firm recommends a product or products, where the customer asks for a KFI, or where the customer has indicated what product they want in an execution-only sale.
While there is not now a requirement in the MMR for advisers to assess affordability, in reality this will still be a necessary part of the mortgage process. As every lender will have their own stringent affordability checks advisers will need to be familiar with these and whether their client is likely to pass the affordability checks in order to recognise which lender to place their client’s mortgage with.
- Lenders will be fully responsible for assessing whether the customer can afford the loan, and they will have to verify the customer's income. They can still choose to use intermediaries in this process, but lenders will remain responsible.
- Every mortgage application will need to be stress tested to to ensure all borrowers can afford their loans even if rates rise. The FCA suggests lenders should use the five-year forward sterling rate, which is currently about 3%, to take into account future Bank of England base rate movements.
- Lenders will still be allowed to grant interest-only loans, but only where there is a credible strategy for repaying the capital.
- There are transitional provisions in the MMR that allow lenders to provide a new mortgage or deal to customers with existing loans who may not meet the new MMR requirements for the loan. The borrowing will not be able to exceed the amount of their current loan, unless funding is required for essential repairs. The decision on whether or not to lend in these cases will remain with the lender.
For more information follow the links below to understand how this new regulation will affect your business.
MMR webcast (June 2013)
Download FSA 'MMR planning tool Mortgage Intermediaries' (February 2013) (PDF document, 913K)
Feedback on MMR Consultation Paper CP11/31and final rules (PS12/16)
MMR Consultation Paper CP11/31