Due to the lack of money available to them, banks and building societies are being forced to limit the amount of money that they lend to their customers. Any money that they are lending needs to fit increasingly strict criteria. The building societies seem to have valid reasons and they do try and help where they can, whereas there are banks who, in my opinion, appear to be making the rules up as they go along, with the aim to maximise profits with the limited funding they have. I believe some banks will find any excuse if they can’t see what is in it for them, with us recently hearing of a story of a declined mortgage application due to one penny outstanding on an unpaid bill. I’m almost certain this customer didn’t choose to not pay the penny due to financial hardship or poor money management skills, but somehow this particular bank, which I won’t name, thought it was enough to deny their customer from borrowing the money they needed.
It is not just the banks who are enforcing new rules, the FSA are in the process of assessing the UK’s entire mortgage lending system and trying to make sure that we don’t see times like we did in 2008 and 2009 reoccur.
A lot of these new rules do however make sense, and even though it is going to make things a lot more difficult for those who are not in strong positions, it can only be a good thing in the long run to ensure that we don’t overstretch. One thing that is being examined closely is the maximum income multiples that are allowed to be lent. Although at first it appears that the higher income multiple that can be used the better, perhaps this is the main reason why so many people struggle when things get hard. At the moment, the very maximum mortgage we can obtain is based on five times what we earn, but imagine if it was ten times what we earn. We couldn’t all be in bigger and better homes, instead the homes we are in would just cost us a lot more to buy. Although we wouldn’t all commit ourselves to such a big mortgage, there would definitely be those who would. So looking at it the other way round, if in the future we were all forced to borrow less, houses wouldn’t cost as much as they do now, and we wouldn’t need to commit so much of our monthly outgoings to our mortgage repayments.
For some of us, the changes that are happening in the mortgage market are painful, and perhaps it is wrong for the FSA to enforce so many new rules so quickly, but in the long term I believe it is the right thing to do. This should mean a more stable market for future generations, although perhaps they should introduce these changes over a longer period so we don’t have to take the full impact all at once.
Kieron Bassett Financial Services have two independent financial advisors who can help guide you through the mortgage market and find a deal that meets your needs. For no obligation, independent advice contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com.
Jason Hinde CertPFS