We are about to witness quite significant changes in the regulation of mortgages in the UK.
New rules come in to force with the implementation of the Mortgage market Review from the 26th April 2014.
What will this mean for borrowers?
Lenders will require to show the regulator, the Financial Conduct Authority, that they are lending “responsibly”. As a consequence they will be looking for more information from potential borrowers in order to assess the present and future affordability of a mortgage.
This process will include a “stress” test to ensure that the mortgage loan would continue to be affordable if the repayment increased.
Most lenders will use an affordability calculator as part of their assessment which can often be accessed by your adviser or on the lender’s website.
These affordability checks will almost certainly mean that more documentation will be required by the lender at an early stage of the application process. It will therefore make sense to have readily available your most recent payslips, P60 and bank statements if you are to be looking for a mortgage. Proof of income will certainly be required – the days of self certification of income have gone!
When looking at your mortgage proposal the lender will check your expenditure including your normal expenditure as well as any loan repayments, credit card balances and other regular commitments. With regard to credit card balances it is worth noting that for affordability purposes the lender is likely to assume a repayment of 5% of the outstanding balance as a commitment even though the borrower may be on an interest free arrangement.
A potential borrower will be asked to confirm any personal changes that may affect his or her ability to pay the mortgage – such as a change of job in the offing, changes to business profits or to family circumstances.
Borrowers looking for a re-mortgage and those borrowers wanting to make changes to their existing mortgage will also require to go through this new underwriting process.
Some lenders have already decided to streamline the range of mortgages they offer as a result of these new rules.
This Briefing has been produced for information purposes only and is based on the law and other information available at the time of writing. We cannot be held responsible for any losses incurred through acting or failing to act on the basis of anything contained in this Briefing.
If you require advice on any of the matters referred to, please contact us so that we can advise you, taking account of your own particular circumstances and requirements.