Most people will need a mortgage if they’re looking to buy a house. Mortgages can be very complicated things, and the UK mortgage market has undergone many changes over the years. One of the most significant additions is the MMR – Mortgage Market Review. If you’re ever trying to buy a property, then it’s essential you know what this is.
Below, we’ve compiled all the information you need to know about the Mortgage Market Review, so it’s explained in the simplest way possible.
What is the Mortgage Market Review?
The Mortgage Market Review was introduced in 2014 as a way of regulating the UK’s mortgage market. It was thought that people found it far too easy to apply for mortgages during the housing market boom ten years ago. The problem with this is that many people would have mortgages and not be able to pay them back, which led to a market crash.
So, the MMR came into play to prevent this type of problem from happening again. There are a few main things that come with the Mortgage Market Review, and we’ll discuss them now.
What changes were implemented by the Mortgage Market Review?
The biggest change revolved around how lenders assessed whether or not someone could afford a mortgage. Prior to the MMR, a lender would just look at how much money you earned and calculate whether or not you had the capacity to afford their mortgage. As you can imagine, this led to so many people being given the green light.
Now, they have to look at each individual in more detail. Along with their income, a lender must also check how much money is spent every month, whether or not they have any debts, and even how many monthly subscriptions they have. This creates a much clearer picture of if someone can afford a mortgage.
To go alongside this, interest-only mortgages got an overhaul as well. It used to be very easy to get a mortgage where your monthly payments only contained the interest you were charged. Now, you have to show a repayment plan to the lender as a way of proving you can borrow the money and can cope with this type of mortgage.
Lastly, there used to be something called a self-certification mortgage where you didn’t even have to prove your income. Now, the Mortgage Market Review has banned these in the UK.
What does this mean for you?
If you’re thinking about applying for a mortgage, then the MMR has basically just made things a little bit more controlled and regulated. It may be harder to get one compared to a decade ago – and you have to pay a larger deposit – but the good news is that you should only be approved if you can actually afford the loan. As such, there’s less chance of you failing to make repayment and ending up in serious debt.
The Mortgage Market Review was introduced to stop irresponsible lending that caused millions of pounds of debt and a market crash. If you want a mortgage, then you should be financially responsible, work on raising your credit score, and shop around for the best deals.