The Mortgage Market Review (MMR) set out to reform the mortgage market – to ensure it is sustainable and protects consumers. The review offered an encouraging desire to reinvigorate the UK mortgage market whilst ensuring continued access to suitable and affordable mortgages for consumers.
Will the intent translate into an improved experience for the consumer? Or, will frustration boil over as a result of new and intrusive processes? And, do consumers really understand what the MMR is?
The majority of the MMR guidelines which came into effect on 26 April 2014, now require lenders to move on from simplistic use of income multiples to a far more granular assessment of income, expenditure and evolving risk.
They must verify income information provided by the applicant as part of a wider reaching affordability assessment and must consider the affordability of mortgage payments alongside existing credit commitments and basic household expenditure.
In addition, within the affordability assessment lenders are required to perform an interest rate stress-test considering the potential impact of rising interest rates on mortgage payments. For interest only mortgages lenders must now assess affordability on a capital and interest basis, unless there is a clearly understood and credible alternative source of capital repayment.
A survey commissioned by Experian* found that three quarters of aspiring homebuyers in the UK do not know what the MMR is, and of those who do claim to know, the research reveals that most are ill-informed, with many believing it will mean smaller deposits and relaxed lending criteria – when the opposite is, in fact, true.
Among the 28% that claim to know what the programme is:
- 43% think the introduction of the MMR means they can apply with smaller deposits – when larger deposits to make mortgage repayments more manageable, are likely to be needed.
- 19% believe lenders will have relaxed their lending criteria after April 26 2014 – when affordability checks will in fact become much more stringent
Only 44% correctly understand that it means lenders will be more careful about ensuring that mortgage applicants can afford their repayments, both now and into the future .
- Just 15% are rightly aware they will need to speak with an adviser before getting a mortgage
55% feel more confident about getting a mortgage following its introduction – yet other findings from the Experian report suggest this confidence may be misplaced.
At a time when it has never been more important to support consumers through the mortgage application process, this evident gap in consumer’s understanding of MMR, could result in a poor customer experience when they apply.
To find out more, including the impact on customer service, affordability, the use of data and analytics, please click here.