Will the new mortgage affordability rules affect your chances of getting a mortgage?
Following the financial crisis in 2008, the U.K. government requested that the Financial Conduct Authority (FCA) – formerly the Financial Services Authority - carry out a Mortgage Market Review. The purpose of this review was to examine all laws and rules related to mortgage lending and create a mortgage market that was fairer to borrowers, and safer, too. The market review is expected to create a lending and borrowing environment that is safe and sustainable.
In other words, the Government does not want to see excessive lending which, in the past, led to people borrowing too much and in some instances defaulting on their mortgage.
The changes in the review will be implemented in in April, 2014. In this article UKFCS Mortgage and Loan specialists will explore the key changes and talk about how they will affect potential borrowers. We will also explain how we can help you understand these changes and assist when it comes time to apply for a mortgage.
The new affordability rules mean that full responsibility for checking whether or not a borrower can afford a mortgage will lie with banks and other types of lenders. These financial institutions by confirm and verify income, too. This means that house-hunters who are looking for a mortgage for the first time will not be allowed to self-certify and say that they are earning a certain level of income.
In addition to new mortgage applications, the FCA has ruled that an affordability assessment will be required for existing borrowers if there is a new loan agreement contract has been drawn up to replace an existing contract. This can be waived when there is no increase in the level of borrowing, or when there has been no change to the mortgage contract in the area of affordability.
Another exception to the affordability assessment is where an advance is sought for maintenance or repair work on the property if the value of the property will be negatively impacted if the repairs are not carried out.
Almost all lenders do not feel that the FCA reforms will significantly affect most borrowers’ chances of getting a mortgage to obtain property. More than 70 per cent of lenders surveyed by Intermediary Mortgage Lenders Association (IMLA) said they were sure this would not be the case. Around 20 per cent of intermediary lenders said they were not sure about the outcome of the review and the affordability rules.
The IMLA surveyed more than 300 intermediaries as well as its own members. In the survey, a large minority of brokers were less certain. About 34 per cent of brokers said they did not anticipate a significant reduction in the number of successful mortgage applicants, while just over 44 per cent are predicting that more people will be refused a mortgage. The remainder did not know or did not respond.
The IMLA said the new affordability rules are common sense and follow internal rules and guidelines that many lenders currently follow. However, it states that the review was important in order to make sure that home owners, particularly new buyers, can fulfil financial commitments both now and in the future and that they do not over-extend themselves.
If you want to get a mortgage, you will see from reading this article that your lender must prove that you can afford your mortgage and that you are earning what you say you earn. It is not difficult to provide the relevant paperwork, and working with UKFCS we can help you gather together all the relevant material that is required for your application. We can also advise on which documents to produce and how to present the material to your prospective lender.
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