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Real Estate Investment
Intermediary Mortgage Lenders Association
the Mortgage Market Review
Property Housing Bubble
The lending market will not be dented by the introduction of affordability checks, according to new research. A study by the Intermediary Mortgage Lenders Association (IMLA) found that there is confidence that the checks, which resulted from the Mortgage Market Review (MMR), won't quell growth in the number of people successfully applying for a mortgage. In fact, just seven per cent of intermediary lenders believe significantly more people will be turned down for a mortgage because of the new stress test.The checks will be used to assess whether borrowers could afford repayments if interest rates rise. Following the market crash of 2008, embedding such a test in the lending process is designed to ensure people have the finances to avoid defaulting on payments. However, there has been fear that introducing this assessment would prevent many from moving on or up the property ladder.When MMR takes effect in April 2014, responsibility for the affordability checks will pass from brokers to lenders. Many provisions of the reforms are already standard practice for lenders, making the transition a smooth one. However, mortgage brokers aren't as convinced that the borrowers won't feel the effects of the chance. While 34 per cent of brokers don't expect stress tests to significantly reduce the number of mortgage applications, some 44 per cent believe more consumers will be turned down.Nevertheless, attitudes towards MMR have been changing and among brokers positivity has increased since the start of the year. In August, IMLA found 66 per cent were not at all worried about the checks, compared to just 42 per cent in January. What's more, the percentage of people with considerable concerns has fallen from 12 per cent to four per cent.Peter Williams, executive director of the IMLA, said: "The MMR rules on affordability are built on common sense and are not too far removed from how many lenders already approach the issue. Recent experience has shown how important it is to ensure that mortgage borrowers can reasonably manage their commitments, not just now but in the future."The introduction of MMR could also help to keep a cap on house prices, amid fears of property market bubble. By making real estate investment dependent on affordability, in the near-term buyer saturation could be kept at bay. It will also make the market more sustainable, reducing the number of distressed homes.
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