Five years in the making, the Mortgage Market Review (MMR) has now come into force. As we all know, this has directly affected the regulated residential mortgage market, but the changes have also been forecast to indirectly affect the unregulated, buy-to-let market.
Many prospective owner-occupiers will take the new regulation in their stride and accept that putting together a mortgage application will be a more lengthy and stringent affair. They will get used to the fact that a full income and expenditure check is now the norm and they will need to be as best prepared as possible. However, there is the likelihood that some prospective buyers may be unable to buy due to the stricter lending criteria around affordability. This will result in them remaining in the rental market and driving up demand there.
We are already seeing brokers and lenders focusing on the potential in the buy-to-let market and the increase in tenants driven by the MMR could strengthen this further. This is good news for experienced property investors who could see continuing strong returns on their investments and a more stable rental market.
Although Shawbrook does not offer regulated residential mortgages, we believe that it’s important for us to voluntarily maintain similar standards to those the FCA insists on. We have always adopted stressed interest rates to check affordability and have ensured all fees, costs and commissions are declared to the clients. We believe it’s important to sense-check that income covers personal expenditure. Stress testing may daunt some clients, but by ensuring they can still afford their mortgages when interest rates rise, your client is protected. We also pride ourselves on having a range of professional, service-focused brokers who provide sound advice to clients, and it is this quality of advice that we wish to maintain.
Whether in the regulated or buy-to-let market there is also an expectation that lenders will rely more heavily on their broker partners, making their relationship with this key channel more important than ever. It is the brokers who will be on the frontline, communicating the new requirements to clients and ensuring all documentation is in order. It is the brokers who will be assessing the clients’ affordability more closely and supplying the advice. As clients often desire independent advice, we would like to see this force a seachange in the volume of clients heading directly to brokers to source advice.
The MMR has forced the residential mortgage market to change but we see this as an opportunity for the buy-to-let sector and the brokers and lenders within it. We look forward to seeing the shape of this new mortgage market as the regulation settles in and to the services of brokers being more in demand than ever before.
Karen Bennett is sales and marketing director for commercial mortgages at Shawbrook Bank