The Mortgage Market Review guidelines and what do these mean for you?

mortgage change The Mortgage Market Review guidelines and what do these mean for you?

In April (2014) the new rules for mortgage lending introduced by the Financial Conduct Authority (FCA) in the UK came into force.

These rules are known as the Mortgage Market Review guidelines and they aim to protect the consumers and make sure there is no repeat of the irresponsible lending that occurred before 2008.

So far so good; after all, some regulation preventing excessive borrowing could not be such a bad thing.

As usual, the devil is in the detail.

These much tougher guidelines, coupled with the withdrawal of cheap funding for bank and building societies and seen through the continuing increase of house prices can have several interesting and undesirable effects. These are likely to lead to:

  • Much increased affordability checks where mortgage applicants will be required to provide information about all monthly payments and expenses and will be asked to provide evidence and validation. This is obviously time consuming for the borrowers as well as the lenders.
  • Stress testing which apparently some lenders are already doing. About 50% of the borrowers will be obliged to see a qualified mortgage adviser.
  • These are expected to result in more admin workload, longer time to decision on mortgage and higher fees.
  • There have already been reports that following these rules is overloading the ‘back room’ of the banks and building societies.

What do these changes mean for you?

One thing you, my reader, will need to concern yourself with is whether you’ll meet the new, stricter affordability rules.

In fact, your chances of getting a mortgage and buying your own home are very slim if:

  • You earn less than £25,000 per year (just to put this in perspective, the average salary in the UK is £26,500 but averages are deceptive: four in five new jobs are in sectors averaging £16,640 for a 40 hour week).
  • You have a small business (a very sizable proportion of the UK economy consists of micro enterprises).
  • You are self-employed or freelance. Here I’d like to point out that we already are seeing a generation where the majority of people are self-employed or freelance. This is not a temporary bleep in labour markets and its staying power is confirmed by the fact that the middle range, middle income, middle class and entry for people with degrees jobs are mostly non-existent.
  • You have passive income sources like pensions, equity in a business and/or rental income.

In other words, these new rules that are meant to protect the consumer are to be expected to keep out of the housing market most ‘mortgage misfits’.

It seems to me that we can expect changes to the housing market – and the financial services around it – that reach much deeper than we can see at the moment.

Apart from all else, these new regime will demand a different way to manage your money including the financial discipline to get out of debt, to save larger deposit and the grit to earn more.

There is another ‘elephant in the room’, namely the scarcity of affordable homes in the UK.

Paul Winter, Chief Executive of Ipswich Building Society, says:

“The Government needs to address housing supply issues rather than potentially limiting those on average incomes from obtaining a mortgage. Many aspirational home owners are facing a double lock: unavailable lending and a lack of homes to choose from.”

If you prefer to look at information as pictures, have a look at the infographic below.

Do you think these changes will affect you and how?

Mortgage Misfits consumer The Mortgage Market Review guidelines and what do these mean for you?

photo credit: ShellyS via photopin cc

7 thoughts on “The Mortgage Market Review guidelines and what do these mean for you?”

  1. Interesting! Housing affordability is more important in the long run. In the United States, there are still places where the average person can buy a home. Unfortunately it is well removed from the Los Angles and probably most major California cities..

    1. @Krant: It is very similar here in the UK. In fact, there are places, like London, where people on very high pay can’t afford to buy and we are seeing the return of a situation where young families with children live in very small spaces.

  2. These rules are not designed to protect the consumer at all but the banking system from another systemic collapse.

    Most people will work hard to pay their mortgages and the affordability questions are invasive at least. Yes the banks have lent too much but it wasn’t the UK housing market that caused the crash, nor was it investment banking. It was banks buying rubbish and I still don’t know why some people who were in charge of certain banks haven’t joined Bernie Madoff in jail.

    It is shutting the stable door after the horse has bolted, taking wadloads of cash so let’s punish people who want to buy a house. All this will do is freeze the housing market that was showing some signs of recovery and lead some people into shady back-street money lending to keep their true position off the credit agency records.

    The brain-dead politicians who dreamt this up already have their mansions, probably inherited from daddy, and have no interest in how the ordinary person struggles to make ends meet and build some security for their families.

    As a result more and more will be forced to rent for a long time, putting them at risk of a rent increases and a one month eviction notice if their landlord decides to sell up or doesn’t like their face.

    The big issue in the UK is that we have built far too few houses for at least 30 years yet have an increasing population. By some estimates we need a million new homes to stop the house price spiral and let wages catch up.

    1. @John: Agree with most of what you say and can feel you indignation. And, yes; we need to build new houses and reclaim some that have been left to ruin. Probably time to invest in a building company?

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