Statistics published by Experian suggest that new mortgage rules have led to disappointment for a significant number of prospective property buyers, one year on from the Mortgage Market Review (MMR).
The statistics, based on a survey carried out in May 2015 by Explain the Market among a sample of 1,500 UK adults, suggest that 45% of those who planned to purchase a property since the introduction of the new affordability rules last year have failed to do so.
The results advocate that the affordability rules have slowed down property purchasing and may have had an impact on the recent decline of transaction levels. One quarter of those surveyed claim that the MMR has impacted their ability to buy a property, while over a third report the changes have made them feel less confident in securing a mortgage.
The research also suggests that a large number of consumers had very little consideration as to how a lender might analyse their ability to repay. 46% of those who planned to buy a property have never checked their credit report. Evidently there seems to be a substantial lack of understanding among many consumers as to how a lender makes their decision.
The new rules were created to implement more robust and vigilant criteria for allowing applicants a mortgage. For example customers must prove evidence of an income of such an amount that will attest they can afford the mortgage and pay it back in a credible repayment strategy. The theory behind it was that these rules were to make the mortgage market more sustainable, for both lenders and borrowers, with a view of preventing a repeat of the financial crisis.
Over a year on, what are your thoughts on the true impact?
Guy Shone from Explain the Market, says the rules have generally created problems for many and 2016 needs to encourage more productive financial advice to be provided to property buyers. This will then, according to Shone, provide each consumer with the best chance to understand and secure the best mortgage for their needs.
Other statistics also indicate that prospective purchasers have struggled since April of last year. The Council of Mortgage Lenders (CML) data suggests lending has fallen 25% on a monthly basis from April 2014 to February 2015. Amid falling mortgage rates, however, the good news for consumers is that as lenders can no longer compete on application criteria, they are now competing on price.
Mick McAteer, FCA Non-Executive Director, argues another benefit of the MMR is that it’s improved the reputation of the mortgage sector:
“There is a more sensible approach to lending generally but it has also retained flexibility where necessary.
“Overall, standards have become more responsible and there is a more measured approach to lending. It is the combination of a more realistic approach to prudential regulation – the creation of credit – and more sensible sale and distribution of mortgages. All along the supply chain, it is working better.
“There have been both positive and negative short term effects of the MMR a year after its introduction, although its long term effects still remain to be unseen.”
What are your views on the MMR – what changes have you witnessed over the past year and what are your expectations for coming months?
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