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Not long now until the Mortgage Market Review – preparation is key

16 Apr 2014

Phil Broadhurst, a partner in our banking and finance team, explains why everyone needs to be prepared for the Mortgage Market Review (MMR) – even those lenders with mortgage portfolios in run-off.

With just a few more days to go until the introduction of the MMR, it’s certainly a busy time in the compliance world – even for those of you who feel completely prepared for this important change to regulation.

A number of lenders have mortgage books that are in run-off. That is, they are no longer open to new business or additional borrowing. In the new post-MMR world, where lenders will need to assess affordability and, in some instances, provide advice, you might think the road would be easy.

However, that is not the case, as the new rules (subject to some useful transitional rules) will also apply to many post-sale contract variations such as transfers of equity, term extensions, switches from interest only to capital, interest repayment types and even consents to let. In addition, there are changes to arrears rules and reporting requirements – so lenders in run-off do not escape that easily.

Throughout the run-up to the MMR, a great deal of attention within the industry press has been on making sure lenders have the right systems and processes in place, along with the challenge of finding enough qualified advisors in a competitive market. While all these are, of course, important parts of the preparation for 26th April, it’s important to ensure front-line staff are ready.

A recent survey by Homeloan Management Limited (HML), the UK’s largest third party administration company, indicated that the biggest concern for around a quarter of respondents was customer frustration. With income and expenditure forms required for all contract variations, along with stress-testing to take into account higher interest rates and the potential for a customer to go down the advice process, underwriting periods are likely to get longer. Front-line staff need to be prepared for potential customer frustration and be able to clearly explain why this is the case, while highlighting the long-term benefits for the borrower.

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After 26th April: what next?

From then on, it will be interesting to see how the new rules fit. In particular:

  • The scrutiny the mortgage market will be subjected to by the Financial Conduct Authority
  •  How many post-sale contract variations are carried out (lenders carry out thousands of contract variations each year, so it will be interesting to see what impact the changes have following the MMR being implemented)
  • How the advice part of the process will work

It is expected that there will be so few applications coming through the doors that every single application, letter and communication will be reviewed to the nth degree.

The key to the implementation of all new legislation, rules and regulations is preparation and, with the assistance of their in-house compliance specialists, supported by professions external advice, lenders should be feeling reasonably content and assured. The same HML survey revealed that half of respondents have identified some gaps in their MMR preparedness, but they should be ready for 26th April. It’s interesting to note that 8 per cent do not believe they will make the 26th April deadline. On the other hand, 25 per cent believe they are already ready for the MMR.

For further information or advice, please contact Phil Broadhurst on 0191 232 8345 or email: phil.broadhurst@hay-kilner.co.uk