Three ways that new mortgage rules have affected you in the last year
A year ago, tough new regulations known as the Mortgage Market Review (MMR) came into force. Designed to protect both banks and borrowers after the financial crisis, the rules have had a significant impact on mortgage lending in the UK.
But what have been the most significant changes in the last year, and how have you been most affected by the new rules?
More house sales have fallen through
Longer mortgage processing times have had the knock-on effect of seeing more house sales fall through. Mark Hayward, managing director of the National Association of Estate Agents, says that the average time it takes to secure a loan has risen from around 37 days to 53 days.
“The longer transactions take to go through, the more chance there is that the chain will break,” he says. “Lenders are asking a lot of additional questions about income and affordability, which slows the process. Last summer, when house prices were rising rapidly, we saw a lot of cases where buyers were ‘gazumped’ by higher offers just weeks after agreeing a sale.”
More 'mortgage prisoners'
One of the biggest consequences of the Mortgage Market Review has been a rise in the number of so-called 'mortgage prisoners' that it created. Changes to the way that lenders assessed affordability have meant that millions of borrowers have been unable to switch to cheaper deals either with a new lender or, often, with their own lender.
There have been thousands of cases where borrowers have been unable to move house or to switch their mortgage to a better deal, even when their circumstances haven't changed and where they don't want to borrow any more money.
In addition, there have been lots of cases of borrowers in their 50s and 60s who have been refused mortgages because the mortgage will extend beyond their retirement age. Lenders are much more reluctant to agree loans to older customers, particularly where their loan is on an interest-only basis.
Fewer mortgages have been agreed
In very simple terms, the new mortgage rules have resulted in fewer home loans being agreed. In February 2014 there were 48,500 new 'house purchase' mortgages agreed, worth £7.8bn. However, just a year later this number had fallen to 40,600 home loans, worth £6.8bn.
And, even though mortgage rates have tumbled over the last year, the number of remortgages fell from 24,900 in February 2014 to 21,500 this year.
Mortgage expert Ray Boulger says: "The reforms have increased the number of borrowers who are turned down for a mortgage, and in some cases they are more than capable of affording a loan.”
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