Is the post-MMR market a ‘toxic mix’ for advisers?

In this market, perception can be everything. However, a client’s perception can be incredibly out of kilter with the facts and the true nature of the market, and it has to be said that mortgage borrowers today, and potential ones as well, might currently have the wrong perception about the market and their ability to secure a mortgage from it.

Related topics:  Mortgages
Rory Joseph and Sebastian Murphy
23rd November 2017
Sebastian Murphy Rory Murphy JLM
"Consumers are far more confident about their prospects to secure mortgages than at any time since the MMR, even though conversely (in our view) it’s certainly harder to get a mortgage"

MMR was over three and a half years ago, which is a long time in this market, and as time has moved on there’s been a concerted effort to make getting mortgages ‘easier’ for all types of borrowers. We don’t think there’s any arguing with the fact that many lenders, in the immediate period post-MMR, gold-plated the requirements which resulted in far tougher criteria and affordability measures than the regulator envisaged. In essence, the practise was rather different to the theory and there was plenty of noise made about the hoop-jumping that had to be completed in order to secure a loan.

Clearly, as time has moved on so have lenders, although to a very great extent those criteria and affordability measures have not changed that much. After all, if you’re a lender, the last thing you want to do is get on the wrong side of a regulator that is incredibly keen not to have a repeat of the Credit Crunch.

However, many within the market have continued to push the message – particularly recently – that securing a mortgage is not as hard as it was. And, lo and behold, borrowers have bought into this, to a point where we’d argue the level of collective consumer nervousness about getting a mortgage – or indeed any other type of credit – has abated. Thus, we’ve seen an increase in the level of consumer borrowing and this might not truly be fuelled by mortgages – it’s more likely to be credit cards and the like – but it’s not gone unnoticed by the lenders or the regulator.

And so we find ourselves in the somewhat ironic position that consumers are far more confident about their prospects to secure mortgages than at any time since the MMR, even though conversely (in our view) it’s certainly harder to get a mortgage now than say 12 months ago. Lenders are definitely not opening their doors to all and sundry; instead they’re being far more prescriptive in their requirements – this is not just happening in sectors like buy-to-let by the way where the PRA underwriting changes have determined how lenders now act. Instead, it’s across the piece in terms of greater levels of paperwork being required of advisers and their clients, whether you’re a residential borrower or a portfolio landlord.

There are other factors which are adding to this ‘harder’ market, not least the worry from lenders that recently-sold properties might have been over-valued, and the attitude and viewpoint of surveyors who seem much more inclined to down-value because of this. Certainly, we’ve seen a number of potential remortgages undone by down-valuations because surveyors are, shall we say, being more conservative, and clients are undoubtedly going to question why this is the case, and what this might mean for their chances of getting the finance they need.

In a sense, all this provides something of a ‘toxic mix’ for advisers to work their way through – certainly there needs to be a client conversation which focuses on their expectations of what the market might be like, and the reality of what it’s really like. Borrowers might think the market has got easier, but those of us who are at the coal-face will know rather differently, and there are plenty of soft skills required in order to both give a realistic picture and to secure them the mortgage they want/need, without promising them world and delivering nothing of the kind.

The outlook may well change, and change quickly. We all know it can do in the mortgage market and with a new year on the horizon, it might mean lenders looking again at the way they operate. However, we’re not holding our breaths on this, and with much economic uncertainty still evidently in the mix, I’m unsure that lenders will be keen to loosen their lending/criteria/underwriting reins anytime soon. These are of course the cards we are dealt, but in this game it’s probably best to share them upfront with all other players.

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