Mortgage Market Review – Getting a mortgage to become more difficult as new rules take effect

Tougher mortgage criteria from the Mortgage Market Review which takes effect from April will increase affordability checks, completion times and could bring higher charges.

Industry experts are warning that taking out a mortgage is set to become more difficult this year as a raft of changes take effect. A shake-up in the rules around affordability, the withdrawal of cheap funding for banks and building societies, plus fears of a new housing bubble could all lead to lenders toughening their criteria and favouring home loans for low-risk borrowers.

Experts are saying that the Mortgage Market Review, which is being introduced by the Financial Conduct Authority, will “inevitably” lead to more buyers being refused mortgages or being offered much smaller amounts than they need.

Affordability checks

Perhaps the biggest change for consumers will come in April when the Mortgage Market Review comes into force. The Financial Conduct Authority is bringing in these new rules to protect consumers and prevent excessive or risky lending by mortgage lenders. However, lenders and brokers say the change will extend the process of taking out a mortgage and reduce the amount borrowers can raise.

The number of affordability checks carried out when you apply for a loan will grow as lenders will be forced to delve deeper into borrowers’ financial situations before deciding whether to offer a mortgage. All monthly payments and household expenditure will be considered during the application process and will need to be validated. Borrowers will be required to disclose all their monthly outgoings, from credit card and student loan repayments to season ticket costs and how much they spend on child care or school fees, before they are given a mortgage.

Under the new system banks will base mortgage offers not on borrowers’ salaries, but on how much disposable income they have. Thus someone earning £30,000 but with few regular overheads might well be able to borrow more than someone earning £50,000 but also paying for loans, credit cards and school fees.

Paul Broadhead, head of mortgage policy at the Building Societies Association says “The new rules may mean some borrowers find they can borrow less than they might have expected in the past.”

Post courtesy of The Guardian.