Would you lend money to somebody who had a bad reputation for not paying people back? Or somebody who would really struggle to pay you back because their income is too low? Not many of us would. In the past the mortgage market has been very different, sometimes less questions were asked than we would ask ourselves if it were our own money.
In recent days the FSA have published a mortgage market review with the aim of restricting how money is lent to homebuyers. Included in the report are proposals to ban self-certification mortgages, where borrowers do not have to prove their income. Those who have not had to prove their income when applying for a mortgage make up a much higher proportion of borrowers that go into arrears or are repossessed than they should. It doesn’t seem fair to refuse mortgages to those who can’t prove their income, but in hindsight it seems pretty obvious that if somebody doesn’t have to prove their income, they are more likely to stretch the truth a little.
The FSA has also discussed reducing the maximum amounts lent to borrowers based on both their income levels and what they can afford month to month.
The new proposals could be a setback for potential first time buyers who have been saving, only to find lending policies are about to change. They may have to continue living at home or renting for longer than hoped. It will be disheartening for those who have set their minds on purchasing a property quickly, but this is only because of the trend in recent years for first time buyers to be able to buy a property with little or no deposit. Many of the younger generation will not be aware of a time when people had to save long and hard to buy their first home. Although this may seem like a daunting task to take on, first time buyers should be in a better position to repay what they owe and hopefully have built the discipline to manage their money more responsibly.
Although many of us think that we can keep to a budget that we make, in practice it can be more difficult and we spend a little more than we planned. So maybe borrowing money at our very limits of affordability, isn’t the best thing to do. If asked to make a budget, it is easy to reduce your outgoings on paper to make a mortgage repayment fit, but we may not leave any room for the simple things that we enjoy, like going to the pub on a Friday after work or treating yourself to some new clothes.
The mortgage market review could make it more difficult to obtain a mortgage in the future and it is worth contacting an Independent Financial Adviser who specialises in mortgages to help you obtain the mortgage that is most suited to your needs. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
May I finish by saying thank you and farewell to Adam Elkin who has recently left us after being part of the team here at Kieron Bassett’s for 10 years and we all wish him well for the future.
Jason Hinde CertPFS