Mortgage Market update on MMR and why there are delays in processing applications

[Freelancer Financials]

Thanks for that John. I can identify with one of the examples in there from personal ongoing experience - before the regs came in we were offered 60% ltv from a lender then when push came to shove and we progressed through the application, this was dropped to 55%. Just my bad luck that this all happened over the cut off date I assume.

The other thing I've been trying to impress on them is that whilst there is the affordability test on interest rates, I'm looking at a fixed rate for a number of years and so doesn't that place us outside of the parts around increases in the base rate?

Lenders must ‘stress test’ a homebuyer to see if they will be able to afford potentially higher monthly costs as rates rise and to generally lend more responsibly.

A lender, who might be offering a mortgage at 4% fixed rate for 5 years, will still have to decide whether an applicant would be able to make regular repayments if the rate rose to something like 7% after 5 years. In order to decide, the lender will not only take account of income, but of outgoings too. The lender is interested in how much money is spare in a borrower's personal budget. So any regular payments could be asked about in the application process.
This could range from the cost of regular haircuts, gambling and club subscriptions and deliveries, to holidays, travel season tickets and childcare.

Borrowers will also be expected to say if their financial position is expected to change. That could include any predicted changes in income or working hours, but might also include any plans to have children in the near future.

Some lenders have gone overboard and others have taken a more common sense approach to assessing income and expenditure. A good mortgage broker will know this.

[jamesbrown]

The other thing I've been trying to impress on them is that whilst there is the affordability test on interest rates, I'm looking at a fixed rate for a number of years and so doesn't that place us outside of the parts around increases in the base rate?

You can only fix rates for a limited period (10 years at most, unlike the US, for example), so that wouldn't apply to the lifetime of the mortgage. On the contrary, it would increase risk to the lender if affordability were only deemed acceptable because of the fixed rate period.

[NickNick]

Thanks for that John. I can identify with one of teh examples in there from personal ongoing experience - before the regs came in we were offered 60% ltv from a lender then when push came to shove and we progressed through the application, this was dropped to 55%. Just my bad luck that this all happened over the cut off date I assume.

The other thing I've been trying to impress on them is that whilst there is the affordability test on interest rates, I'm looking at a fixed rate for a number of years and so doesn't that place us outside of the parts around increases in the base rate?

[Freelancer Financials]

Mortgage Market update on MMR and why there are delays in processing applications

Worth reading if you're planning to apply for a mortgage. Some lenders have been affected worse than others, so it is worth checking with your mortgage broker what sort of delays you can expect. For instance, if one particular lender is offering a slightly more competitive rate, say 0.2% cheaper but there are huge delays and bottle necks, is it worth the risk? Such delays could see home buyers losing a property. The main change is the distinct slowdown in the turnaround of the assessment of cases. This is a major problem for buyers, especially in the fast paced London market.

It's a mortgage brokers responsibility to give their clients a realistic and truthful view of current market conditions. That includes telling them which lenders have been affected worse by the impact of MMR.

John Yerou
MD of Freelancer Financials