In response to the financial crisis in 2007, the Financial Services Authority (now replaced by the Financial Conduct Authority) carried out a comprehensive review of the mortgage market, in order to improve lending practices and prevent excessive or risky lending, whilst ensuring continued access to mortgages for consumers.
Following a number of published proposals and consultations, the Mortgage Market Review (“MMR”) Rules were published in October 2012 under Policy Statement PS12/16 “Mortgage Market Review – Feedback on CP11/31 and final rules” ( These MMR rules, intended to promote responsible lending, come into force on 26 April 2014 by virtue of the Mortgage Market Review (Conduct of Business) Instrument 2012 (FSA 2012/46) made under the Financial Services and Markets Act 2000. 

Some of the key changes under the MMR rules, which primarily affect the pre-mortgage offer stage, are:

• Lenders, rather than intermediaries, will have full responsibility for verifying a customer’s income and scrutinising their finances in order to assess whether the customer will be able to afford the repayments over the first five years of the loan.

• The new affordability guidelines include ‘stress testing’, which involves checking how mortgage applicants would cope with a rise in interest rates.  Lenders will be able to decide what interest rate to apply for the test (in practice, many lenders are already adopting the ‘stress test’ by using 7% as a yardstick).

• Borrowers seeking an ‘interest only’ mortgage will need to have a credible strategy for repaying the loan – mere reliance on house price rises will no longer be sufficient.

• Every mortgage seller will be required to hold a relevant mortgage qualification (there is a transitional timetable in place for this). Apart from a few exceptions (see below), mortgage sellers will be obliged to provide advice to borrowers during the application process (whether the sales are face to face or by telephone).

• Exceptions to ‘advice sales’ (provided the borrower has elected to ‘opt out’ of receiving advice) are internet sales, sales to mortgage professionals, business loans, rate switches/certain amendments to existing loans and sales to ‘high net worth’ borrowers (who have an annual income of more than £300,000 or more than £3 million in net assets – for these individuals there will also be less stringent affordability checks). 

Critics of the new MMR rules say that mortgage applications will take longer to process, there will be an increased administrative burden on lenders as well as borrowers (with lenders expected to pass on their increased costs to borrowers) and that more borrowers, than the MMR rules are intended to protect, will be denied access to mortgages which previously would have been available to them.  The impact of the MMR rules on lending is only expected to increase as interest rates rise.

The reality is that lenders have already responded to lessons learnt from the financial crisis by acting more prudently and self imposing more stringent procedures during the loan application process. Therefore, most of the changes imposed by the MMR rules may not mean a drastic change to lenders’ current practices.

On a final note, the EU Mortgage Credit Directive (Directive 2014/17/EU), which is intended to create an efficient and competitive single market for mortgage credit in the EU, came in to force on 20 March 2014 and is to be implemented by member states by 21 March 2016.  Although the FCA has stated previously that the Directive accords closely with the MMR rules, it will need to ensure that the MMR rules and the EU Directive do not contradict each other. The implication for lenders is that further changes to the MMR rules are likely.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.


For further information, please contact Catherine Cava at or Helen Waller at