How will the new mortgage lending rules effect me?
From 26 April 2014, new mortgage lending rules come into force under what is known as the Mortgage Market Review (MMR). We take a look at what this means and how will it affect your mortgage application...
The changes to the mortgage market, implemented by the Financial Conduct Authority are designed to ensure people only take out a mortgage they can afford, and to prevent a re-run of the irresponsible lending practices of the past. The rules are aimed at mortgage lenders and advisers but will have an impact on your application so it’s worth being aware of the changes.
You’ll have to provide more information
Mortgage lending used to be all about multiplying your income. That is still a lenders’ main concern, but they are also going to want to know about your income and expenditure in more detail. This means you will have to provide more evidence than before, including three months’ worth of payslips, maybe more, up to three years of accounts if you are self-employed, and evidence of any bonuses.
Your outgoings will also be scrutinised. The details required will vary between lenders and while there is some talk of lenders asking what you spend at the hairdressers, they will be most interested in the fixed outgoings – council tax, childcare, insurance, credit cards and so on. So in the lead up to your mortgage application try to reduce your fixed bills, for example look at alternative utility providers.
Top tip: lenders will be checking your credit rating. See our tips for improving yours
Your application may take longer
As lenders will have to find out more about your personal circumstance before deciding which product suits you best, your mortgage interview is likely to take longer. Some suggest it could last as long as two hours. Getting a final decision could also take a lot longer. Having all the correct paperwork ready may save you time.
Top tip: establish what your monthly budget is, detailing your income and expenditure ready to answer questions from the mortgage lender. Have your payslips and bank statements at the ready
You will need to get advice
We’ve always been of the opinion that the days of popping into your local bank to get the best mortgage deal are over. Homeowners in the know understand the value of shopping around and taking advantage of professional expertise. That’s why we recommend using a mortgage broker. But many people still simply pop into their local branch. Under the new rules, banks and building societies will now be obliged to give advice on the most suitable products for you as well as their general sales pitch.
Top tip: look for a mortgage broker who doesn’t charge a fee for their advice. We have teamed up with London & Country, the UK’s leading fee-free mortgage broker, to bring you simple, fast and hassle free mortgage advice.
Who do the new rules effect most?
Well, it could mean that even if you’ve saved and are ready to go, your step on the property ladder could be delayed. Mortgage applications could take longer to complete and may be more complicated. Getting your mortgage approved could also become more difficult. And you may not be able to borrow as much as you expected.
But it’s not just first time buyers. Lenders will also scrutinise those looking to remortgage, get an extension on a mortgage for an improvement project, people moving to a new home and those transferring a loan to a new property may also be reassessed.
Top tip: check affordability by speaking to a mortgage broker. They can give you an indication of what you can borrow taking into account your monthly household budget. The mortgage calculator on our mortgage services page can also give you a rough guide although doesn’t take into account your specific household expenditure items.