Are lenders all set for April’s new rules?
The property market has undergone a rapid transformation in the space of twelve months, writes Richard Sexton of e.surv. The volume of lending has been up-scaled, and home lending has increased 34% over the past year, according to our latest Mortgage Monitor. As we move forward into 2014 there are more first-time buyers, more home-movers and greater lending to borrowers with small deposits. House prices are rising too, spurred by the British public’s insatiable appetite for property, and slow-to-react home-building initiatives.
But there are a few speed bumps lined up along the road this coming year, which could put the brakes on the continued recovery, if they’re not manoeuvred around correctly.
New regulations for the mortgage market, as outlined in the Mortgage Market Review (MMR) are set to come into play on 26th April. They aim to reform the lending market, making it both more sustainable and more consumer-friendly.
Lenders – rather than intermediaries – will be responsible for stringent affordability checks; to ensure those applying to take-out or renew a loan can afford their repayments. For interest-only mortgages, there will be compulsory reviews to ensure a repayment strategy is still in place.
MMR will have ramifications for non-bank lenders too, including increased capital adequacy requirements. And every seller will be required to have a relevant mortgage qualification, so they can give customers the expert advice they may require.
In the long-term, implementing a more rigorously regulated mortgage market will help bubble-wrap borrowers from potential future economic crises. But in the short-term, it may add layers of red-tape to the lending process.
Will MMR affect lending volume?
..Hopefully not significantly. Banks have had fair warning to put the new rules in place, and most are already fully prepared. And let’s not forget that lenders still have three months to tweak new procedures, and build a pipe-line to offset any slowdown.
But although MMR shouldn’t significantly affect lending volume, it could affect the lending pattern in 2014.
The reason behind this is that although lenders have had time to adapt to revamped MMR, they cannot control the process of smaller compatriots and intermediaries, i.e. the lending process may get clogged up further down the system.
In anticipation of this potential log-jam, some lenders may hit the high streets hard in the first few months of 2014, to up their lending volume before any potential slowdown. Others will continue lending at a steady pace, and pump-up lending after the new regulations come into play, and intermediaries have finalised their changes.
Another potential obstacle to lending..
…could come in the form of the next RICS/McDonald Independent Commission on Valuation report. The ‘surveyor shortage’ made the headlines in 2013, as home-moving increased at a rapid rate. Professional valuations – a key stage within the home buying process – began to take longer, as surveying firms played catch up and slowly began increasing manpower to meet demand.
The RICS report will look at the supply of valuers, and outline best valuation practice. It will propose new guidelines for lenders and valuers on how best to protect the greater public, and lenders and valuers may need to adjust their models accordingly.
A New Year for lending
Despite the regulation shake-up, the mortgage market should continue strengthening in 2014. The initial hype surrounding Help to Buy may die down, but buyers will continue to be attracted by low rates. And banks are lending more to borrowers with smaller deposits, as their confidence in the continued economic recovery grows. First-time buyer numbers have grown 28% in the past year as a result, according to the latest First-Time Buyer Tracker from LSL.
The new regulations may potentially create a short-term lending bottleneck, but they will ensure a safer lending environment for leagues of future buyers, and that can only be a good thing.
This is a guest post by Richard Sexton, business development director of e.surv chartered surveyorsTagged in: mortgages
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