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MMR ushers in new mortgage lending era

vickyhartley
Written By:
Posted:
26/04/2014
Updated:
26/04/2014

The Mortgage Market Review rules bringing stricter affordability assessments and a potential processing slowdown come into force today for the first time.

The FCA said the rules put “common sense at the heart of the mortgage market and prevent borrowers ending up with a mortgage they cannot afford.”

The Mortgage Market Review (MMR), aims to remedy examples of pre-credit crunch toxic lending, which resulted in an arrears spike for higher risk borrowers. Many lenders say they incorporated affordability assessments some time ago, however, new lender technology has brought a raft of processing glitches in recent weeks.

The rules will make it compulsory in most cases for borrowers to take advice before buying a mortgage for example and provide far more evidence of household expenditure to give a clearer view of affordability.

Martin Wheatley, chief executive of the FCA, said: “There has been huge effort both by the regulator and the industry to get to where we are today. Since the crisis, lenders have been taking a far more sensible approach to mortgage lending, and the MMR is designed to ensure that this common-sense approach continues.

“We do not want to see mortgage lending return to the practices of the past where people were taking out mortgages they simply couldn’t afford.

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The new regime will prevent a return to self-certification mortgages, as from now, lenders must always check a borrower’s income, said the FCA.

Other effects include a far more specialist interest-only mortgage market, where borrowers have to evidence concrete plans to pay back the capital instead of relying on rising house prices.

The MMR rules took five years of close working between the FCA, the industry and consumer groups to create and implement the new regime which comes into force today.