Mortgage Lending and the Mortgage Market Review – A Prophecy Fulfilled?
Back in April the Financial Conduct Authority introduced the Mortgage Market Review (MMR). The Review established tougher criteria that had to be met by prospective home buyers before they would be lent the funds they needed to buy a house.
Before the new criteria were introduced there were fears voiced by lenders and estate agents about the negative impact they might have upon the property market as fewer people would be able to raise the mortgages they needed to buy a home. A few months after the scheme was introduced, have those warnings been fulfilled?
All of the evidence that we have compiled here at Robert Oulsnam and Company suggests that we were right to have fears about the consequences of the MMR, as there has been a significant slowing of the rate at which mortgages have been approved.
Data released by the Bank of England shows that during May lenders approved the lowest number of house purchase mortgages for nearly 12 months. May was the fifth consecutive month in which mortgage approvals had fallen, but there is marked decline in the figures once the MMR was introduced.
March saw 66,507 mortgages approved for house purchases – by April the figure drops to 62,807, and during May there were only 61,707. The May figure is the lowest number of approvals since June 2013. In the first month of 2014 there were 75,838 mortgages approved – much higher than the May figure, but still nowhere near the monthly average of over 100,000 approvals in the period before the Credit Crunch.
All of this represents a major slowing of the mortgage lending rate. Before the Bank of England figures were released the British Bankers’ Association also revealed that they believed the month of May had seen the lowest number of home purchase approvals since August last year.
So it seems that the caution and wariness about the MMR that lenders and estate agents displayed before April was thoroughly justified. This is despite the Council of Mortgage Lenders revealing that the actual amount lent to home purchasers during May had increased by 2 billion pounds – a figure that reflects current house price rises rather than a greater willingness to lend money on the part of mortgage providers.
The two worries voiced before the new lending criteria were introduced – that increased bureaucracy would slow the mortgage approval process, and that the tougher criteria would prevent otherwise creditworthy individuals from being able to raise the capital to buy a home – have both been realised.
Interviews and application processes that previously took a few hours now drag on for several weeks, whilst the new criteria that assess borrowers’ potential ability to maintain repayments in the event of significant interest rate rises are penalising those looking to step onto the property ladder.
At Robert Oulsnam and Company and amongst other estate agents, we wait to see if the slowing of mortgage approvals will have an effect on house prices and demands for rental properties.