New regulations have now come into force on April 26th that could profoundly affect the housing market. The regulator the Financial Conduct Authority has introduced the new rules known as The Mortgage Market Review, to ensure borrowers can afford their mortgages both now and into the future. They are attempting to ensure that there will be no repeat of the easy lending that took place before the financial crisis.
To achieve this aim I believe that they have taken a ‘big stick’ approach to the lenders and put them under a lot of pressure to meet the new regulations. As a result the lenders have been forced to recruit or train advisers to be able to comply with the new regulators regime. Already we are hearing that due to the lack of qualified mortgage advisers, in some areas there are long delays for appointments to see lenders or brokers. Once appointments are made lenders are now saying that interviews could take up to three hours, with leading lenders such as Nationwide Building Society and Santander, saying that they are averaging two and a half hours. The reason for these extraordinary long interviews is that they are going to ask a series of questions that they have never asked before in such detail. In addition to asking the normal questions with regard to proof of earnings and regular outgoings, they are asking much more intrusive questions. This could involve asking about smoking habits, gambling habits, the use of pay day loans, the cost of pets and asking about hobbies. Some are drilling down to the finest details, such as how much you spend on personal grooming or eye care. Others are then looking into the future and asking if you intend to take a loan out after the mortgage has completed, with some even asking about starting a family with those costs being potentially deducted from the amount you can borrow.
Having grilled the mortgage applicants the lender will then stress test your affordability by assuming latest rates of up to 7%. This means that after all outgoings are taken out; there must be a considerable cushion in your disposable income to meet the potentially higher rates in the future.
The general advice for people considering applying for a mortgage is to pay down debt, resist gambling online and taking out pay day loans and generally being very careful with spending during this period. Hopefully this will increase your credit score and increase your chances of getting the mortgage you require.
Personally I believe this mortgage clamp-down is going to add costs to mortgages, putting more pressure on borrowers than it should as lenders and brokers spend fortunes on new systems with the costs being ultimately passed onto consumers. I believe that, with lenders having had a record of, in many cases, lending for nearly two hundred years, it would not have been beyond them to devise a system that would be simple and safe. For example, they could have introduced long term fixed rates without penalties (as they have in the US) to overcome the issues with regard to rates rising and just adjust income multiples downwards if they feel that these days people have too much money to spend on other things. In addition they could perhaps introduce a requirement for life cover on mortgages (provided you can get it) to protect both the lender and the consumer. On a potentially positive note for some, I feel that the government’s actions in making it harder to borrow money will slow down the housing market, with perhaps the base rate rise that was imminent being put back a little bit longer as the market absorbs the regulators intervention.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages, general insurance and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
28th April 2014
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