11 Jul New mortgage rules 2014 – why you should care
Alarmed by all the talk of the new mortgage rules? Let us help you get to grips with it.
What new rules?
During the housing boom of 2005-2007 many lenders gave borrowers mortgages that they couldn’t afford. The inevitable consequence was an increase in people defaulting on their mortgage payments and, sadly, an increase in repossessions. The Financial Conduct Authority (FCA) brought about some changes in April this year regarding how you go about getting a mortgage. It’s called the Mortgage Market Review.
What’s the point of the new mortgage rules?
Basically, to prevent the over-borrowing from happening again. New checks and balances are now in place so that people can’t borrow more than they can afford to pay back.
There are three main things that have changed:
1. You now need to prove that you can afford the mortgage, and this means that lenders will take a fine toothcomb to your spending. You will need to dig out pay slips, utility bills: all the obvious stuff. But you’ll also be asked about haircuts, how often you go out, whether you gamble…the list is pretty exhaustive.
As If that wasn’t enough, they’ll also take a microscope to your future needs, for example how higher interest rates will affect your spending or whether you are planning on starting a family.
2. Interest-only mortgages were particularly popular in the housing boom, but these will be much harder to come by. You can’t just say you will save for the future and pay off the mortgage that way: you actually have to prove it. You will have to put something credible into place. The lender will check up on you, too.
3. Whether you use a mortgage broker or go straight to the bank, both will have to give you advice before you apply for a mortgage. Previously, you could tell them that you didn’t want advice, and just have them execute the mortgage. The rules don’t apply if you’re a mortgage professional, re-mortgaging to raise money for a business, or a high-net-worth individual (annual income of more than £300k).
Who do these new mortgage rules apply to?
Everyone. Well, everyone who is using their home as security for the loan (i.e. who will lose their home if they don’t pay their mortgage). In other words, pretty much most people who take out a mortgage to buy a home. It doesn’t cover buy-to-let mortgages or second mortgages.
Be prepared for a wait. Bank staff now need to be specially trained before they can deal with customers wanting a mortgage, so you may have to wait a while to secure an appointment. In addition, the interview to apply for a mortgage can take anywhere from 1.5 to three hours.
So what does it mean for me?
You may only be able to borrow less than you would have previously, and it may be harder to get a mortgage if you’re a new borrower.You may be shocked at the level of questioning, and spend an inordinate amount of time digging out information.
But all is not lost?
Come back next week and we’ll tell you how you can best get prepared for applying for a new mortgage.
Want to discuss buying a new home? Contact us for expert advice if you’re planning a move in Chalfont St Peter, Chalfont St Giles, Gerrards Cross, Rickmansworth and Beaconsfield. Call us on 01494 873663.