The Mortgage Market Review and the PRS
The new Mortgage Market Review came into effect on 26th April. This is a thorough review of the mortgage market which started 5 years ago and aimed to reform the market, ensuring it works better for consumers. The reforms mean that the majority of customers who can afford mortgages will still be able to access them whilst avoiding the excessive and high-risk lending and borrowing that was seen in 2007. But what effect, if any, will the MMR have on the Private Rental Sector?
In 2012-13, around 4 million households were private renters in England¹. It has been suggested that the average age of a first time buyer without parental help is close to 40. The fear is that the MMR will cause lenders to become ultra-cautious – certainly initially – and the whole process of applying for a mortgage could take longer. With the more comprehensive affordability checks there is also a chance that consumers will be able to borrow less, making it harder for first-time buyers to get on the ladder.
However, renting does not need to be viewed as a poor sibling to owning a home. Our survey of tenants in 2012 showed that 60% of respondents did not consider themselves to be renting ‘reluctantly’ and were, in fact, more than happy to being renting their home. Some of the reasons given were that it gave them freedom to move house; it allowed them to get to know an area before committing to living there long term; and that renting provided them with an opportunity to rent something which they could not afford to buy anyway.
On the other side, investors will not have the concerns that first-time buyers have. The MMR is a Financial Conduct Authority (FCA) paper and as such, the reforms only apply to mortgages which are regulated by the FCA. Straightforward buy-to-let mortgages (i.e. you will not be living in part of the property or planning to move back into the property in future) are not regulated by the FCA and so the reforms will not have a significant effect on these.
We are only a few days into the MMR and so it will be interesting to see how it will affect our clients and customers over the coming months.