Most of us are in a muddle about MMR, so let’s get a few things straight
The majority of aspiring homebuyers do not know what the MMR is – and even those who have heard of the government’s new Mortgage Market Review are mostly are ill-informed, believing it will mean smaller deposits and relaxed lending criteria.
The worrying level of ignorance has been highlghted by a survey commissioned by Experian, the global information services company.
According to the survey results, 43 per cent of those questioned think the introduction of the MMR means they can apply with smaller deposits – when larger deposits to make mortgage repayments more manageable, are likely to be needed;
One in five believe lenders will have relaxed their lending criteria, when affordability checks will in fact become much more stringent;
Only 44 per cent of the respondents correctly understand that it means lenders will be more careful about ensuring that mortgage applicants can afford their repayments, both now and into the future;
And just 15 per cent are rightly aware they will need to speak with an adviser before getting a mortgage;
The Mortgage Market Review (MMR), which was introduced yesterday, aims to make mortgage lending more responsible and stable.
However, it does mean that those hoping to borrow to purchase a property will need to show they have considered how they will be able to manage their repayments in the long term – for example, in the event of an interest rate rise.
In order to stand the best chance of securing a mortgage – and to get one with the best interest rate – homebuyers need to get their finances in the best possible shape. However, it appears very few potential buyers are doing that.
Experian’s Peter Turner said: “Although none of us have the luxury of a crystal ball to see into the future, understanding how much we can really afford to borrow - and crucially, repay – even if our circumstances change, is so important for any credit application.
“Time spent preparing your finances now will pay dividends in the future. We’d advise potential homebuyers to look at their financial situation as soon as they make the decision to look for a home, and not just before they apply for a mortgage. This will give you the chance to make any improvements necessary and get accepted - and at the best rates, too.
“Simple steps like increasing your monthly credit card repayments, ensuring you’re registered on the Electoral Roll and not taking on additional borrowing can make a real difference to how lenders see your ability to afford and manage a mortgage. But it does take time to build a clear, consistent track record of positive money management.”
Here are some simple tips from Experian CreditExpert to help you prepare for a mortgage application after the Mortgage Market Review:
1. Know your budget. As soon as you decide to look for a property, scrutinise your last few months’ outgoings carefully to understand your spending habits. Are there things you could do without to finish each month with cash in the bank?
2. Know what you can really afford. Visit a broker or use an online mortgage calculator to work out your likely repayments. Importantly, play with the interest rate settings to see if you could afford repayments if rates rise.
3. Make sure your credit report is up to date. As well as checking your outgoings, you should also check your credit report, which includes a record of all your borrowing over the last six years. Ensure everything is accurate and up-to-date.
4. Does your Experian Credit Score need work? The Experian Credit Score is a guide to help you understand how a lender might score your credit worthiness. If it’s lower than you expected, ask the experts for help and ensure your credit report paints the best picture possible before you make your application.
5. Build good behaviours. Finally, from now until your application, try to appear like an ideal mortgage borrower. Show you can make it through several months with a slight surplus. Don’t take out additional borrowing and try to demonstrate you can comfortably manage any outstanding credit commitments you have.