Mortgage Market Review Preparation

The Mortgage Market Review (MMR) rules come into force exactly one year from today.

Those of you who attended the FSA Roadshows, or have read the articles on the FSA/FCA website, will be aware that the FCA are expecting all firms who advise on mortgages to be planning the implementation now. Indeed, they are tracking the progress of all mortgage regulated firms during Q2 2013 via an online survey (we do not believe the survey is open for completion yet).

It is essential that firms have an implementation strategy and appoint a member of staff to manage the changes.

The key changes can be summarised under the following headings

Advice

Advice must be given where there is spoken or other interactive dialogue during the sale.

Advice means assessing whether a product or a range of products meets customers needs and circumstances.

Advice must be given by a suitably qualified adviser.

The non advised sales process has been removed.

Execution only

Applicable only when:

  • there is no spoken or interactive dialogue during the sale;
  • the customer has rejected the advice (except sale and rent back) and positively elected to proceed on an execution only basis;
  • the customer is a mortgage professional, HNW, or the loan is solely for a business purpose; or
  • it is a variation to an existing contract or a product switch (subject to meeting certain criteria).

Not applicable:

  • vulnerable customers (debt consolidation, equity release, sale and rent back and RTB).

Additionally, there are standards that must be met when conducting business on an execution only basis.

Sales Standards

Firms must act in the best interests of their customers.

The intermediary must assess that the customer meets the lender’s eligibility criteria.

Strengthens obligation to consider appropriateness.

Further advance disclosures must be made.

Positive election to roll fees or charges into the loan.

All relevant records must be kept for a minimum of 3 years.

Disclosure

Messages must be ‘clear and prominent’.

Firms must disclose two key messages on their service:

  • Any limitations to the range of products (no need to use ‘labels’);
  • How they will be remunerated.

KFI trigger points:

  • Before the customer submits an application;
  • At the point when advice is given;
  • When the customer requests an illustration;
  • When the product is known in an execution-only sale.

Affordability

Responsibility for assessing affordability lies with the lender.

Intermediary checks that the customer meets the lender’s eligibility criteria.

Evidence of income will be required in all cases:

  • no fast-track or self-certification mortgages.

Expenditure:

  • committed expenditure (e.g. loans, credit cards, child support etc);
  • basic essential expenditure ( 8 prescribed items e.g. utility bills, council tax, insurance etc); and
  • basic quality of living costs (e.g. clothing, household items).

Interest-only and the lenders responsibility

Credible repayment strategy is required but it must not be speculative (such as a reliance on property prices increases, or an uncertain inheritance).

There must be an Assessment of affordability.

Further rules

These cover High Net Worth Clients Bridging Loans, Equity Release and Home Reversionary Plans

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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