Following the Mortgage Market Review by the Financial Conduct Authority, the process of getting a mortgage is likely to get harder with potentially less money available to people to borrow.
The new rules are designed to protect borrowers from taking on more debt than they can afford and lenders will now be looking in more depth at borrowers’ finances. From the end of April, all monthly payments and household expenses such as utility bills will be looked at and validation of these may be required. Bank statements will be gone through with a fine tooth comb and questions may be raised about any expense with supporting documentation asked to be seen.
A further aspect of this review is stress testing an applicant’s finances. Lenders will look at the effect of an interest rate rise to see how borrowers’ finances would cope with higher monthly payment. If say you borrow £200,000 and there is a 1% rise in the base rate from the Bank of England, there would be a monthly increase of £167 on your mortgage payments for a non fixed product.
There has been concern from the mortgage industry that this will slow down the home buying process and make it more expensive to take out a mortgage with the extra work required, but in light of property boom and bust, is this such a bad thing?
Self certification mortgages are to be outlawed so the optimism of borrowers who want their dream home but ignore the fact they can’t really afford it are prevented from making bad financial decisions that will end up costing them their home when they fail to make payments.
If you’re considering buying, please feel free to contact Homefinders for mortgage advice and how the new rules may affect you.
Haydar Sehri's blog