MMR – The Mortgage Market Review or Money-Making Ruse?

Published on: April 18, 2014

Good news to report at last for discredited high street banks. It seems they have discovered a simple method to repair the hole in their balance sheets.

The not-so-good news is that they have found a way for their borrowers to pay for this. Let me explain.

In just over one week`s time, prudent measures are being introduced for lenders, following a regulatory review aimed at constraining high risk borrowing.  The FCA is understandably concerned that mortgage affordability should not become an issue as, if or when interest rates start to rise.

A number of lending institutions have already implemented these Mortgage Market Review (MMR) changes ahead of the official April 26 date.  So far so good.

The problem is that, in practice, certain banks are choosing to over-interpret the regulator`s requirements to their own potential advantage – which does not sit too well with their statutory requirement for, “Treating Customers Fairly”.

Money Guidance has been made aware that existing fixed rate borrowers who have requested to “port” their mortgages are being presented with all sorts of obstacles, inappropriately citing the MMR as the reason.  One semi-retired couple in their mid-50s, with eight months left on their 2 year fixed rate mortgage, recently asked to move a 10% loan-to-value mortgage from their £1.7 million property to another costing nearly £900,000. Unfortunately, they have been told that they “no longer meet the criteria” and applications will therefore have to be made for “exceptions” before they can make any progress with their request.  Even if they are eventually successful, the delays involved will probably result in their missing out on the home they wish to purchase.

At this point, it may be worth looking at what the regulatory framework actually states:

“The transitional arrangements come into play only where there is a regulatory requirement to undertake an affordability assessment – i.e. a new regulated mortgage contract or a further advance. An affordability assessment is not triggered by a variation to a contract where there is no additional borrowing. Therefore the transitional arrangements are not relevant.”

However, this week alone the couple in question has been subjected to three different affordability tests – two by telephone and one at branch office – without being able to report any tangible progress.  Arrangements have had to be cancelled and over eleven hours have been wasted in an effort to accommodate the bank`s requirements.

One bank official was heard to utter: “We always thought that MMR was a disease: now we know it is”

So what could be the possible motivation for high street banks to behave in such an unhelpful manner towards their customers?  Well, we might want to take a look at the maths in search of one possible answer. According to the Council of Mortgage Lenders, gross mortgage lending hit £177 billion in 2013 and, in the first quarter, as many as 83% of borrowers elected to have a fixed rate mortgage - “the highest proportion since the industry started gathering figures” (more than 20 years ago). That`s a lot of money (nearly £147 billion) potentially waiting to be “ported” when you consider that one in eight householders will be moving every year. HMRC reports that 930,000 homes were sold last year and, at long last, that figure is on an upward trend.

A cynic might observe that this presents the potential for tens of millions of pounds to be paid by borrowers to lenders in the form of Early Redemption Charges (ERCs) in the near future.  Based on last year`s data, if only 5% of borrowers with fixed rate mortgages were forced to pay ERCs (based on 3% of their outstanding balances), it looks as though upwards of £220 million could be dropping into lenders` laps by default.

Rationally, they just wouldn`t be that stupid, would they?  It was only last year that the FCA warned lenders to be careful about massaging their Standard Variable Rates upwards, for fear of transgressing Treating Customers Fairly regulations.  Well, Money Guidance believes that a combination of obfuscation, stonewalling and ineptitude on the lenders` part might just encourage enough borrowers to throw up their hands in despair and pay the ERC in order to avoid losing house sales and purchases.  The following accurate representation of a telephone call between our hapless couple and Nat West may lead to you draw the same conclusion:

(Porting Hopefuls):  ”Hello, we`ve sold our house and wish to take advantage of your facility to port our mortgage which costs £347 per month to our new home.”

(Nat West): “We`ll need to do a check on your income to make sure you can still afford to do this”.

(PH): “That`s a surprise: our financial circumstances have improved since 2010 and, once we sell the house, we`ll have over two million pounds in realisable investments and assets. The only thing that is changing is the property, not the borrowers”

(NW) “That`s not really relevant, we need to do an income check for you both.”

(PH) “Well, for a start, we receive rental income of £27,000 per annum from two apartments we own and manage.”

(NW) “Have you got three years` accounts for this?”

(PH) “They were only purchased a couple of years ago”.

(NW) “We can`t count it then”

(PH) “My wife takes dividends from her Property Development Company – about £10,000 in each of 2011 and 2012. She didn`t develop any property last year, but has purchased more land and will be doing so again in 2014.

(NW) “We can`t really include those either”

(PH) “We tend to maximise our CGT allowances each year and have taken more than £30,000 from our investments over the last two years.

(NW) “No, that doesn`t count”

(PH) “We have SIPPs totalling more than £600,000, but we don`t particularly want to exacerbate our tax positions by taking the income at that moment.”

(NW) “Well, that won`t be relevant either.”

(PH) “I formed a limited company in 2013 and have taken repeat fees of more than £7,000 in the last four months.

(NW) “Have you got three years` accounts?”

(PH) “Er…. no”

(NW) “Then that can`t be taken into account either.”

(PH) “Look, once we`ve moved, we`ll have £1.5 million in the bank, and assets exceeding £3 million. Your bank seems to be concerned that we can`t afford a mortgage equivalent to two Starbucks and a couple of buns a day over the next eight months.  We don`t feel too inclined to pay you nearly £5,500 as a penalty when you claim to offer a mortgage that`s portable in all your literature”.

(NW) “I`m sorry, that`s the system. As you have failed the income test, the computer can`t go any further and we will have to book a further telephone appointment next week.  In the meantime, I shall have to apply for official exemptions based on your income shortfall and your eventual inability to repay this interest-only loan.

(PH) ” What happens if we don`t pass?”

(NW) “Then the mortgage will have to be repaid, along with the Early Redemption Charge, on completion.”


All of which makes you wonder what is going to happen to those borrowers who are not in such a fortunate position, and who may be relying on the words of “The Observer” back in February this year:

 ”The good news for borrowers unable to re-mortgage because they have an interest-only deal or self-certification loan is that lenders have been told to treat existing customers fairly, and to offer them competitive rates even if they would no longer qualify for a loan.”

Well, that`s okay then.


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  • Jon Butler

    It is happening to me at the minute. I can’t move house as the bank has told me that I cannot pass their new affordability check for my existing mortgage even though I have paid this for years.

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