New mortgages – big brother or no big deal?

The new Mortgage Market Review (MMR) which brought in tougher lending criteria for mortgages has not seen the significant impacts which were originally being speculated upon and could prove a boon to the future security of the housing market if initial signs are anything to go by.


Damned by the sceptics as being intrusive and indicative of a big brother state, the new mortgage lending rules asks potential borrowers detailed questions about their income and expenditure to ensure they can pay back their loans, even if interest rates rise. 


However, the other camp which I find myself in, despite being a housebuilder, is that these more challenging questions can only be a good thing and should have been asked before. Easy lending is what put many people in the precarious position of many not being able to pay back huge mortgages.

 
Although delays to mortgage applications have increased significantly in the past year, as regulators have imposed more demanding affordability rules on the market, this does not seem to have had an impact (yet) on the number of mortgage approvals, which still remains in advance of last years figures.


According to a survey of lenders by Iress, on average 44 per cent of lenders’ mortgage offers are made within 14 days, down from 56 per cent in 2013. However, despite the scaremonger’s assumptions that it would cause a major slowdown in the market, it has actually had little impact on approvals themselves, with The British Bankers’ Association revealing that approvals were up 0.8 per cent year-on-year in July and 1.5 per cent up on the month before.


Mortgage rates, meanwhile, have been reduced by the major banks and building societies at the minute against speculation that the Bank of England base rate is set to rise in the coming months.


Despite these excellent mortgage rates, many first time buyers are choosing to avoid the responsibility of 25 year mortgages  and all-time high house prices, preferring to rent instead. Twenty-somethings who are used to the increased comforts, disposable income and the work/lifestyle balance that renting can offer are actively choosing to remain a tenant, rather than signing up for the inevitable commitment and ties that a mortgage can bring – against a backdrop of an economy that does not support “jobs for life” this may be a long term correction.


Rather than a steep descent, a gentle slowing of lending activity is now anticipated, as a result of the continuing impact of tighter lending rules and a softening of the London market. Indeed, a number of indicators, especially those reflecting earlier stages of the house purchase or lending process, such as the Bank of England's house purchase approvals data, suggest that borrower appetite may be starting to wane.