New rules for mortgage lending

New rules covering mortgage lending take effect this weekend. The Mortgage Market Review (MMR) is designed to ensure that home buyers only take on debt that they can afford to repay.

Lenders will have to ‘stress test’ all loans to ensure they can survive an increase in interest rates. They will also be expected to scrutinise household finances much more closely, which could include looking at individual items of expenditure. Only staff trained as full mortgage advisors will be allowed to sell mortgages.

What the commentators said

Borrowers will have to disclose spending on “utilities, council tax, credit card bills and basic living costs, including food, clothes, household goods, leisure and childcare”, said The Sunday Times. However, many banks are going even further.

For instance, “anyone taking out a loan with Woolwich, the lending arm of Barclays, will have to give details of any plans they have for their property, such as refurbishments”.

This is not just an empty threat: “Barclays said it will change the terms of someone’s mortgage if it discovers it was not informed of something that might affect the borrower’s ability to repay”.

“We have the unusual spectacle of a state agency intervening in domestic space to tell hard-pressed first-time buyers and families how they should spend what little disposable income they have,” said Hal Austin in FT Advisor. Yet, “there would be a national outcry if the state, through any of its agencies, tried to tell households what make of car they could afford”.

So, what is the rationale for state intervention in mortgages? “Just because someone is poor, low-paid, or even a single parent, does not mean that someday they too would not like to have a place they can call their own home.”

But this is a “common sense approach”, as a spokesman for the Financial Conduct Authority told The Independent, to guard against “the bad practices in the run up to the financial crisis… Under our new rules, anyone that can afford a mortgage will be able to get a mortgage”.

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