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New regulations penalise parents, brokers warn

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17/09/2014
Borrowers with dependents and those on low incomes have been the most affected by the Mortgage Market Review (MMR) rules, a survey of lenders and brokers has revealed.

The research by the Intermediary Mortgage Lenders Association (IMLA) found that 73% of brokers thought borrowers with dependents fared worst while 85% of lenders ranked low income borrowers as the hardest hit category.

Self-employed borrowers were ranked highly by both lenders (38%) and brokers (49%) as struggling to get mortgage finance under the new rules.

But opinions on the impact of the MMR on consumers were split.

Almost two-thirds of brokers (63%) believed significantly more borrowers were being turned down as a result of interest rate stress tests, but just 15% of lenders agreed.

The difference is likely to reflect the fact that while lenders are reporting on trends within their individual businesses, brokers working with multiple lenders have a view across the wider market.

It may also be the case that brokers are advising some borrowers against submitting an application to lenders, based on a discussion about their finances and needs.

Almost four-in-five (79%) brokers believed interest rate stress tests had reduced the amount that could be borrowed, with over half of lenders (55%) in agreement. More than one-in-three brokers (35%) felt that stress tests had reduced loan sizes by more than 10%.

Peter Williams, executive director for IMLA, said: “For many lenders the MMR switchover has been more of a gradual shift than an overnight change. Even so, these are still early days and with processes being fine-tuned the real test will come beyond the six month milestone when we see if these effects have eased off or endured.

Williams said the impact of stress testing raised by lenders and brokers showed the tool was doing its job properly by identifying those who would struggle to manage their repayments if rates were to rise.

“It may involve some short-term pain for those who can only borrow less than they were hoping, but it is a necessary move to protect their long term financial position when the inevitable rise occurs,” said Williams.

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