New Mortgage Rules Force Longer Mortgage Terms

New Mortgage Rules Force Longer Mortgage Terms.

Recent research by us and figures taken from the Financial Conduct Authority has found that the average mortgage term for mortgages taken out in 2014 is now 27.2 years.

This has increased in 5 years by 1.4 years from 25.8 years average mortgage term.

Impact of the Mortgage Market Review MMR

On April Fools Day, 1st April 2014, the MMR came into force.  MMR occured as a direct result of the credit crucng crisis where lenders over exposed themselves to debt with many banks in both the UK and around the World collapsing or on the verge of collapse without State and Central Bank intervention.

Lending too much on over valued property left banks with a huge 'toxic debt' exposure.

MMR introduces many new rules

Suitability and Affordability testing for all mortgages was already a requirement before MMR, but not that well enforced.

The FCA has moved to impose tighter controls on bank lending.

100% mortgages are a think of the past

Self Certified Income mortgages are a thing of the past

Larger deposits are now required (although the Government has technically a conflict of interest in trying now to stimulate property markets with the Help to Buy Lending Scheme and Help to Buy Mortgage Insurance Guarantee Scheme)

Affordability is now tested not just a today's interest rates but also whether a borrower can still afford the mortgage if interest rates by 3, 5 or 5%.

Banks themselves have much tougher capital adequacy requirements set by the EU

This has led to borrowers having longer mortgage terms to ensure that affordability is there by reducing monthly payments over a longer term.

Comment

All this means is that MMR has resulted in borrowers potentially paying even more interest because their loan is for a longer term.  We have seen figures from a number of lenders that the 35 year mortgage term is now becoming common place.

Our only reaction to this is that if you find yourself in a position of having to apply for a longer term mortgage to prove affoardability, then you should over pay every month whilst you can afford it or whilst interest rates remain low to clear down as much capital debt as you can as soon as possible.