The new Mortgage Market Review (MMR) is due to take effect tomorrow.  This will mean that lenders will be making changes in how they approve mortgages and remortgages.  More details will be required to be shared with the lender.  These changes are in place to make sure borrowers can afford the loan and that they can afford it in the event interest rates increase, which they inevitably will.  This means that borrowers will be approved based on their ability to afford a mortgage or remortgage rather than their approval being based on income.

Many of the lenders have adopted the new requirements a long time ago.  The transition has been in process and therefore most borrowers will have already faced the new regulations.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said, “MMR represents a seismic shift in mortgage regulations, but also the end product of a gradual process since the recession to focus in on affordability and responsible lending.

“The last 12 months have heralded the welcome return of consumer confidence to the mortgage market. MMR is another important milestone in the continuing recovery and careful handling will ensure that customers are better off for it.”

Changes that will occur due to the MMR are:

• Stress testing affordability is required of borrowers.  Affordability will be studied as to whether the borrower will be able to repay the mortgage or remortgage in the event interest rates increase.

• Self-certification mortgages are no longer possible due to lenders being required to check how much the borrower earns and their expenditures.

• Interest-only mortgages still exist but the borrower will have to prove they can repay the loan without the sale of the house required to afford the repayment of the loan.

• Lenders must be qualified to offer required advise on mortgage or remortgage borrowing.