Mortgage Market Review: The Rules from 2014
2014 has already seen changes in the Mortgage Market. How well have you adapted?
The regulator has carried out a comprehensive review of all aspects of the mortgage market and its regulation following an increase in particularly risky lending and borrowing, especially during the boom period of 2005 to 2007, which caused severe financial hardship amongst some borrowers.
As a result of this review a number of changes were made to the mortgage regulatory regime to ensure that the market works better for consumers, and is sustainable for all participants.
Some of the issues with risky lending and borrowing were individuals and brokers inflating income in order to secure larger mortgages, individuals taking out interest only mortgages, whilst being unaware of the risks, i.e. that the balance is not reducing or not having an appropriate repayment vehicle in place, and confusion around whether mortgage advice was given or not.
The majority of the MMR changes came into effect on 26 April 2014. Those that are most relevant are:
- Customers need to satisfy lenders that they can afford the mortgage – they must provide evidence of income in all cases;
- The removal of the requirement on intermediaries to assess affordability, this is now the lender’s responsibility;
- Customers can borrow using an interest-only mortgage as long as there is a credible repayment strategy;
- Most interactive sales (for example face to face and telephone) must be advised, unless the customer is a mortgage professional, a high net worth mortgage customer or a business borrower; and
- Non-advised sales are not allowed, but execution-only sales are allowed in certain circumstances;
The FCA has given firms plenty of time and will not fail to intervene or enforce the changes should firms fail to adhere to the new rules.
With our vast experience, TCC is ideally placed to carry out a review of firms’ business practices and offer recommendations on strengthening your processes ready for 2014. Contact us today to discuss your requirements.
What should you have been doing in the run up to MMR? Read TCC’s guidance here.
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