How the new mortgage changes affect you
Why the changes?
Since the last financial crisis, the Financial Conduct Authority have been studying the mortgage market with a view to addressing what some feel have been the "reckless" lending practices of the past.
On April 26th 2014 the way people in the UK get a mortgage changed. New rules introduced by the Financial Conduct Authority (FCA) have now come into force.
From now on lenders will have to demonstrate, on each residential loan, that they have taken steps to ensure the borrower can afford the mortgage not just at the time of application but also if interest rates were to rise in the future.
When assessing affordability borrowers will face much more intrusive questioning about their finances and will need to provide supporting evidence which will be checked thoroughly. The lender will not only be looking at income, but also at the borrowers spending too.
More questions will be asked about spending habits. The lender needs to assess how much income is left after taking into account regular outgoings. So the cost of holidays, travel season tickets, childcare, gym membership and club subscriptions could be asked about in the application process in addition to the usual queries regarding loans and credit card balances.
Applicants will also be asked whether they expect any major changes to their personal circumstances which may affect their lifestyle, in particular, reduction of hours, pregnancy or redundancy.
What does this mean?
The likely outcome will be that many people will be able to borrow less and the length of time an application takes will increase. It will not only affect first time buyers but also those looking to remortgage.
What can applicants do?
1. Prepare a detailed monthly household budget before starting the application process and compare it to what your bank statements show.
2. Ensure all documentation likely to be requested by the lender is to hand in order to avoid any delays in the application being processed.
3. Maximise available disposable income by reviewing all monthly expenses. Cancel any unused gym memberships or non-essential subscriptions. If possible reduce credit card balances or even pay off loans early.
If you would like to go through the implications of these changes in more detail please give me a call or call in and see us in Devon House, on Winchmore Hill Green.
Mortgage & Insurers Solutions
Contact details here
Mark Edwards of Mortgage & Insurers Solutions, based on Winchmore Hill Green, explains how getting a mortgage just got a whole lot harder.