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Mortgage Market Review Already Causing Problems


Thursday, May 15, 2014

Mortgage Market Review Already Causing Problems With Buy-To-Let Mortgage Apllications

Mortgage Market Review Already Causing Problems With Buy-To-Let Mortgage Apllications

Mortgage Market Review Slowing Down Mortgage Approvals

The introduction by lenders of the Mortgage Market Review is the biggest regulatory restructuring that the UK mortgage market has seen in recent years and is intended to test the continued affordability of borrowers.

It’s introduction was intended to protect customers from over stretching their financial commitments in order to prevent repossession and also to prevent a return to the shady lending practices that lead to the global financial crisis back in 2008.

The Mortgage Market Review (MMR) is part of the initiative set out by the Financial Conduct Authority (FCA) and applies to all domestic UK mortgages that are FCA regulated.

The introduction of the affordability test does not yet include the buy-to-let mortgage market but lenders are applying the tactic to all prospective loan applications anyway and the shake-up of lending practices is expected to have repercussions that will affect other aspects of the UK property market.According to recent published data, over 50% of landlords with fewer than eleven properties expect to expand their rental portfolios during the year, but these figures increase to more than 75% of landlords who already own eleven or more properties.

Buy to let mortgages are expected to increase by 25% in response to the continued demand for rental properties, placing net UK mortgage lending at around 44% of the pre-recession peak of £45 Billion (GBP) in 2007 ( falling to 37% when adjusted for inflation).

This continued demand to own rental properties is despite the fact that average PRS rents, whilst still strong, have risen slightly slower than average property prices, meaning that gross yields on buy to let properties have decreased slightly over the course of the year.

The introduction of the MMR will see stress tests applied to the mortgaging process, intended to account for possible interest rate increases when calculating a borrowers affordability, the result will be that fewer residential mortgage applications will actually be accepted and processed.

The current demand to own property could be moderated slightly by MMR and property prices may grow at a slower rate during the remainder of 2014, loosening the squeeze on rental yields and allowing landlords to earn healthier profits.

Many UK mortgage lenders are withdrawing from interest-only residential mortgages, rather than commit to the detailed assessment of repayment strategies. Interest only residential mortgages have become a niche specialty because many mainstream lenders have little need for them, and the introduction of the MMR has only hastened the decision for lenders to dispense with them altogether.

Because strict underwriting and minimum income requirements for residential mortgages are now in place, many borrowers may try to turn to buy-to-let mortgages in order to take advantage of more favourable lending criteria and increase purchasing power.

The introduction of the Mortgage Market Review (MMR) may increase the number of desperate actions taken by would be property purchasers, and lenders are expected to be on their guard, with further restrictions likely to be imposed, such as only granting buy-to-let mortgages to borrowers who already own their own homes.

UK Buy-To-Let mortgages may not be as highly regulated as the residential property market, however, some buy to let property sales will fall under the remit of the FCA if any of the following are true:

  • You or a close family member (a spouse or civil partner, sibling, parent, grandparent, child or grandchild) will be occupying part of the property
  • The tenant will be a close family member
  • You plan to move back into the property in the future

FCA regulation means buy-to-let mortgages can only be offered by suitably qualified professionals, and mortgage affordability will be calculated using income multiples and stress-tested for interest rate increases, among other things.

The process could become the same as applying for a residential mortgage and landlords applying for buy-to-let mortgages may soon discover that the MMR will lengthen the time that the application process takes and it could also increase the chance of being declined.

Buy-to-let mortgages are unlikely to be immediately affected by the significant changes to mortgage approvals due to the MMR, however, landlords have already been targeted by HMRC for taxation purposes and the aim is to get as much as possible into the revenue’s coffers. Meanwhile the Government’s Help-To-Buy scheme has attempted to suppress demand for rental properties, but the UK buy-to-let market is still going from strength to strength and landlords remain optimistic about the future.

Buy-To-Let Mortgage Boom Continues Due To Tenant Demand

Buy-To-Let Mortgage Boom Continues Due To Tenant Demand

 


This was written by Mike Clarke. Posted on at 11:45 am. Filed under Buy To Let. Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Follow comments here with the RSS feed. Both comments and trackbacks are currently closed.