Following the pre-credit crunch ‘reckless’ lending, will new mortgage rules make it harder to get on the property market or re-mortgage?
Are you planning to get on the property market or have you reached the end of your fixed deal on an existing mortgage? If you have answered yes, well brace yourself. Your personal finances will be forensically examined by a mortgage adviser, in an interview which are expected to take up to three-hours.
The City regulator, the Financial Conduct Authority (FCA), has introduced these new rules, known as the Mortgage Market Review, to ensure borrowers are issued with mortgages they can afford both now and in the future. The FCA was concerned that lenders were making it too easy to get a mortgage before the financial crisis. Many households borrowed too much money and found they were unable to keep up their repayments when the financial crisis struck.
The new rules, which come into force on the 26th April 2014, are designed to ensure that lenders conduct a full affordability check on mortgage applicants, prior to granting any loans. Considering the way banks used to lend up to 125% of the value of homes when consumers applied for a loan, these changes will at least ensure genuine affordability checks have been carried out.
These new rules will obviously have implications for not only new lenders but consumers who wish to re-mortgage their homes. The City regulator, the Financial Conduct Authority (FCA), is introducing new regulations to ensure the most extreme cases are not repeated.
Martin Wheatley, chief executive of the FCA said: “In the past too many people got a mortgage by simply telling their lender they would have no problem repaying their debt, and that was that. Our new rules will hardwire common sense into mortgage lending.”
New Lifestyle questions:
- Dental care and Eye care
- Do you have children?
- Are you planning to start a family or have more children
- Do you have any plans to leave your job?
- Are you expected to start a business or become self-employed?
- Do you expect your income to fall over the next few years?
- Have you ever taken out a payday loan?
- Do you ever gamble?
Lenders such as Nationwide and Santander have said that the interview process would take up to two and a half hours on average. Yorkshire Building Society, NatWest and Lloyds Bank estimate it will take around two hours, with HSBC saying the expect their application process to take around one and a half hour. These estimations are based on average mortgage applications and don’t take into account more complex applications which could take considerable longer.
Lenders will also now have to consider if borrowers can afford repayments if interest rates rise from current record lows of 0.5%. Affordability checks will take into account a minimum period of five years, with lenders having to justify the method used to forecast rates.
Many lenders will be cautious with their forecasts. Applications today could see lenders forecasting mortgage interest rates rising from around 2-3% to between 6pc to 7pc by 2019. This predicted rise would see an average mortgage of £150,000 on a two-year fixed deal seeing monthly payments rise from roughly £650 to £1,035.
Experts have warned thousands of buyers and existing home owners are likely to be rejected because they do not meet the new requirements. When you consider there are nearly 10 million mortgages in existence in the UK, with more than £1 trillion owed, with the typical first-time buyer borrowing £137,000, with those remortgaging borrowing an average of £144,500, these new rules could leave consumers off the property ladder or stuck on uncompetitive mortgage deals when fixed deals expire.