Mortgage Market Review (MMR)
The Mortgage Market Review (MMR) reforms to be implemented on 26th April 2014 have been introduced to help prevent a recurrence of past irresponsible lending during the boom period of 2005 to 2007. The MMR has two broad aims:

• To have a mortgage market that is sustainable for all participants
• To have a flexible market that works better for consumers

The Financial Conduct Authority (FCA) reviewed all aspects of the mortgage market regulations and as a result made a number of changes. These include:

Responsible Lending

• The Affordability Assessment – Lenders must verify income and demonstrate the mortgage is affordable for the borrower and take full responsibility for this. They must take into account the borrower’s net income and basic committed and household expenditure including any known future changes to both.
• The Interest Rate Stress Test – Lenders must take into account market expectations of possible future interest rate increases and customers must satisfy lenders that they can afford the mortgage providing evidence of income in all cases.
• The Interest Only Rules – Lenders must assess affordability on a capital and interest basis unless there is a credible capital repayment strategy, in which case lenders must contact borrowers at least once during the mortgage term to check on the status of the repayment strategy.

Distribution

• Advice – Most interactive sales (for example face to face and telephone) must be advised unless the customer is a mortgage professional, a high net worth mortgage customer or a business borrower.
• Non-advised Sales – are not allowed, but execution-only sales are allowed in certain circumstances.
• Execution-Only – Consumers can reject advice (except in sale and rent back sales) and purchase on an execution-only (non-interactive) basis (eg via the internet). Consumers must know precise details of the product and the loan they require in order to proceed. Execution-only can also be used for certain post-sale contract variations.
• Vulnerable Consumer Groups – for example those purchasing equity release, right-to-buy, sale and rent back and those consolidating debt, must get advice.
• Approved Persons – Mortgage advisers and those who arrange mortgage sales will be individually held accountable and required to demonstrate they are ‘fit and proper’.

Disclosure

• Service Disclosure – Mortgage intermediaries must explain whether there are any limitations in the product range their firm can provide and how they will be remunerated.
• Product Disclosure – The Key Facts Illustration (KFI) does not need to be produced until the mortgage product has been recommended to, or chosen by, the consumer – unless they make a prior request.

Arrears Management

• Arrears Charges – Lenders must not attempt to collect more than two direct debits in a month and their arrears charges must be clear and based on reasonable calculations. A charge must not be applied where an agreement is already in place to repay the arrears.
• Concessionary Rates – Lenders must not remove borrowers from concessionary interest rates if they have difficulties meeting their mortgage payments.

Transitional Arrangements
These are designed to mitigate the impact of the MMR new responsible lending rules on existing borrowers who cannot demonstrate affordability or do not have an acceptable repayment strategy. Participating mortgage lenders will have new discretionary powers to help so-called ‘mortgage prisoners’ who find themselves trapped in an uncompetitive or otherwise disadvantageous mortgage deal, either with the same or a different lender. The participating lender can waive certain lending checks such as affordability and capital repayment strategy if they have a sound rationale for believing that the customer’s interests would be best served by exiting from their current mortgage and taking out a new mortgage. The customer must meet a number of eligibility criteria.

• Firstly, their existing mortgage must have been taken out before the MMR rules came into force.
• Secondly, there must be no increase in total borrowing other than product and arrangement fees associated with the new loan, and no increase in monthly payments.
• Finally, there must be no material change to the deal such as an increase in the loan term or adding or removing parties to the mortgage.