There has been a large amount of press coverage on the forthcoming Mortgage Market Review (MMR) over the past few months. In case you aren’t aware of what MMR means for you, we have compiled this guide with what to expect and the impact that this change in legislation may have on the Contractor community.
The purpose of MMR is to reinforce consumer protection and it will be overseen by the Financial Conduct Authority (FCA). Mortgage Lenders will be implementing the new changes with immediate effect and Financial Advisers and Mortgage Brokers will also need to ensure they are compliant. At Contractor Financials, we have been preparing for MMR for many months and are already fully compliant with the changes required.
The key factors of MMR:
The Importance of Advice
One of the key distinctions will be to differentiate those mortgages that are sold on an “advised” basis, and those that are “execution-only”. In the past, Lenders and some financial adviser firms have not been required to employ qualified mortgage advisers and have been able to justify this by stating to the regulator that they are merely “executing” the transaction, even though you may have been under the impression that you were receiving advice. Post MMR the vast majority of mortgages will be advised and there are very few instances where “execution-only” can be used. All of the Contractor mortgages that we process are advised and you can rest assured that the broker you talk to is fully qualified. This has always been our approach.
The Mortgage Process
Mortgage interviews may take far longer to complete as advisers will need to gather more information to determine which mortgage product is most suited to your requirements. If you go direct to a high street branch then this may take as long as two hours face to face but we substantially streamline this by handling the whole process over the phone, email and post.
Affordability
Lenders will need to ensure that the mortgage is affordable for you now and when interest rates increase. At Contractor Financials, we already stress test affordability at 7% interest rates and so are confident our clients can afford their Contractor mortgage now and in the future.
Income Assessment
The assessment process will be far more detailed as you will be required to support your request for a mortgage with appropriate evidence, including documents that can substantiate your income from your employment. As the leading Contractor Mortgage Adviser we’ve worked with the industry to ensure that the MMR doesn’t affect our clients and if you apply through Contractor Financials we will still be able to secure your mortgage using your contract and bank statements. If you approach a Lender direct, they’ll undoubtedly want to see 3 months of payslips, 2 years of company accounts, or SA302’s and confusion surrounding your unique employment status could increasingly cause problems.
A Holistic Approach
Do expect the Lender to ask questions about potential changes to your income or expenditure. The idea behind MMR is for Lenders and Advisers to take a more holistic approach to your mortgage so they will want to understand the reasons why a particular product is best suited to your needs and will remain affordable. We already advise using a very holistic approach so this will have little to no impact if you are applying through Contractor Financials.
Charges
Post MMR, many Advisers are likely to introduce fees if they have not already done so, in order to cover the extra costs associated with the more thorough advice process that is being demanded by the FCA. At Contractor Financials, we are proud to state that we will still not charge a fee for our mortgage advice and for the processing of your application. As a Contractor Financials client, you can therefore rest assured that we will not be introducing broker fees and you can continue to benefit from all of our expertise whilst saving over £500 compared with other firms.
Is MMR good news, bad news, or will it make almost no difference?
MMR will do away, in all but exceptional circumstances, with the notion that you can make one of the most important financial decisions of your life without advice. The good news in terms of consumer protection is that MMR will reduce the risk of Contractors ‘mis-buying’ a mortgage as a result of scant detail from a lender.
Will MMR slow down or speed up mortgage lending?
Here at Contractor Financials we are ready and prepared to fulfil Contractors needs. Initially the information gathering process will take a little longer as mentioned above. In the long term this is actually for your benefit as the background checks are detailed and thorough ensuring you get quality advice.
What if I don’t have a large deposit or equity to put down? Will this have more of an impact on me than someone with plenty of equity?
There was initially a lot of concern that the Financial Conduct Authority (FCA) would cap loan to values and force lenders to ask for larger deposits. Thankfully this hasn’t been the case and, on the contrary, the Governments excellent help to buy initiatives have ensured that first time buyers and next time movers with little equity shouldn’t suffer any additional problems post MMR.
Will I be asked more invasive questions about my financial affairs before being granted a Contractor mortgage?
As a specialist in advising Contract workers we have been lobbying UK lenders to ensure that they don’t discriminate against Freelance professionals as a result of the MMR requirement to carry out more stringent affordability tests. Fortunately our contractor friendly lenders will continue to view Freelancers in a favourable light post MMR but we are concerned about the attitude of the wider lender community.
Is MMR ultimately a good and necessary step or will it cause more problems than it solves?
Greater regulation of the mortgage market is a good thing. Buying a home is invariably the most important financial decision we take in life and it has to be positive that lenders will be looking more closely at ability to repay and that the regulator has seen the value in borrowers being properly advised before they take on such a commitment.
The UK also faces a major challenge around the area of interest only borrowing. In the past, borrowers could contact their existing Lender direct, with little or no questions asked regarding their repayment vehicles. Post MMR, consumers are far more likely to obtain an independent review of their circumstances, enabling a discussion around the potential pitfalls of interest only and the alternatives available.
The futures bright with MMR
MMR is ultimately positive for the Contractor community as there will be greater consistency in how your mortgage affordability is assessed and you will be able to rest assured that your mortgage will be appropriate to your individual circumstances. We don’t foresee any problems with regards to securing contractor mortgages post MMR as we have implemented the necessary changes to our processes long ago and have been submitting ‘MMR ready’ cases for a number of months now.
For further information and advice on how MMR may impact on the contractor mortgage market after it is officially launched on 26th April, or to speak to an Adviser about your mortgage needs this Easter, please contact us on 0208 150 3844 or fill in a contact form and we will be in touch.