April 23rd, 2014
The chief executive of the Financial Conduct Authority has this week suggested that shorter term fixed rates could be a thing of the past, as lenders begin to feel the effects of the Mortgage Market Review.
Martin Wheatley said on Tuesday that, as lenders will now be required to ‘stress test’ borrowers affordability to take into account future interest rate increases over a five year period, there is a real possibility that lenders will steer away from the current trend of offering good value, shorter term rates, and instead offer longer term security.
From 26th April, lenders will have to stress test any mortgage that has a tie-in period of less than five years against their Standard Variable Rate, plus an additional percentage, to take into account future base rate movement – and lenders have to assume a 1% movement over that five year period as a minimum.
This all means that, from a Contractor’s perspective, mortgage rates could potentially appear far less attractive in the coming months, as focusing more on five-year deals removes a big headache for lenders.
“It’s still very early days to see the true impact that MMR has on the reality of the mortgage market” says Taj Kang, Business Development Director at Contractor Mortgages Made Easy. “Officially lenders have until next week to implement their changes; however we are getting an early indication that things may be tricky for a period of time, as lenders start to introduce their new MMR compliant processes now.”
“Initially we heard horror stories from clients who had been asked to attend two-hour long mortgage appointments in branch, but that was the tip of the iceberg. Most lenders now have an average three-hour mortgage appointment to fully assess affordability.”
Never before have the benefits of using a mortgage broker been so apparent, as swathes of borrowers face frustrating conversations with existing or new lenders.
By using a Contractor specialist broker, not only will you remove the burden of sitting in a bank for three hours, but you will also ensure that you’re approaching the right lender for your circumstances – something that will almost certainly trip some borrowers up.
“The likelihood is that there will be many people who approach their bank for a mortgage, having run some rudimentary calculations based on their ‘normal’ affordability criteria, only to find that post-MMR they can no longer borrow what they require” says Taj.
“A specialist broker will do the necessary research for you, having likely been briefed by lenders prior to the change in their assessment criteria, and ensure that you minimise your risk of having any applications formally declined – which could mean that you’re unable to borrow anywhere.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080