What is the mortgage market review?
The housing market boom and bust in 2007 and 2008 served as the main driver behind the need for a change in the mortgage market, embodied by the MMR.
By 2007, the increasing ease of access to mortgages reached a peak. Customers were finding it easier and easier to obtain mortgages with little to no deposit required, but the dangers of this liberal lending were becoming more apparent until the market finally collapsed in 2008.
Banks and building societies began to implement various changes to their mortgage lending procedures soon after, but it wasn’t until April 2014 that the mortgage market review fully came into play.
What are the main changes to the market?
Given that the primary cause of the market crash was reckless lending to those who couldn’t afford to repay it, the biggest change implemented by the MMR is in the assessment of affordability.
Previously, a mortgage lender would have assessed your eligibility based solely on your income, usually making calculations based on a payslip you were asked to provide.
Since the implementation of the changes, lenders now make a significantly more detailed assessment of you as a borrower, looking at your regular outgoings as well as your basic income to get a picture of your overall financial position.
This will include everything from outstanding regular loan repayments to subscriptions, such as Netflix, and phone bills.
This test of eligibility is the responsibility of the lender, and with it comes the need for them to provide reasonable and helpful financial advice to borrowers to ensure they can keep up with repayments.
Another significant change is the restriction on the availability of interest-only mortgages.
With an interest-only mortgage, your monthly repayments will consist only of the interest charged on the amount you borrow, with the remaining capital to be repaid at the end of the term (or earlier if you acquire enough funds).
With the changes associated with the MMR, those who want to take out an interest-only mortgage must provide a detailed repayment plan to demonstrate their ability to repay the loan.
What if I already have a mortgage?
If you already have a mortgage, the changes associated with the MMR are unlikely to affect you until you come to remortgage.
Will I still be able to get a mortgage?
While some will find it harder to get a mortgage, and more will have to pay a higher deposit, the aim of the changes is not simply to reduce the number of people borrowing, but to promote responsibility in the lending process.
The idea is to ensure that those who should be taking out mortgages can. As long as your credit rating is acceptable and your income and expenditure balance, you’ll still be able to borrow what you need.
Now that the market has changed and borrower requirements are more stringent, it’s more important than ever to stay informed about the mortgage market.
Be sure to read through our guides on the specific aspects of mortgage borrowing. Once you’ve settled on the product you want, head over to our mortgage comparison page to start borrowing at great rates right away.