In April all lenders were required to change the way that they assessed residential mortgages. Historically lenders had used simple multiples of the applicant’s income to dictate how much they would lend and although underwriting had become more complex with other factors taken into account there was still a focus on the “top line” of applicants income.
On the 26th April this year, all that changed and lenders were required to look at the customer’s ability to make the payments, not just at the current pay rate but also at a notional figure taking into account the fact that rates are likely to rise in the short to medium term.
At the time there was a great deal of scaremongering that went on, thankfully, whilst the scrutiny that lenders do apply to potential mortgage applicants has risen most of the scare stories have proven unfounded.
What has become clear however is that consumers still don’t really understand how the changes apply to them. A recent survey by TSB showed that only 51% of aspiring homeowners had even heard of the Mortgage Market Review (MMR), which by consequence means that almost half of people looking for a house don’t understand, or in some cases even know about, the changes.
MMR is primarily designed to ensure that people only borrow what they can reasonably afford to repay so it is encouraging to read in the same report, that 41% of those who were aware felt that the rules would ensure this.
As with most things getting professional advice is always a great starting point; borrowers have to remember that this is almost certainly going to be their largest purchase and for most people is their single largest outgoing each month, so getting good advice, listening to that and acting on it is a sound idea.
There are a number of things that can be done in preparation for that meeting and we always advise our customers to have taken time to prepare a few basics before coming in to see an adviser;
· Think about your expenses after you have moved, these will likely to be different to where you currently live and certainly will be significantly different for those who are still living with parents.
· Document these expenses and look at what is left over to pay a mortgage and the associated protection policies.
· Start saving as early as possible, even if it isn’t a huge amount each month
· If you have had financial difficulties in the past get a copy of your credit report. This won’t necessarily stop you getting a mortgage but may mean that an adviser has to look at different option. Non disclosure of any historic financial problems is viewed very badly by lenders so be very upfront about the problems and the reasons for them
· Check that you are on the electoral role, if a lender can’t find you, they are unlikely to want to lend you money.
By John R Hargreaves, Financial Services Director, Reeds Rains Estate Agents
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
An administration fee of £499 will be payable when you sign the professional fee agreement upon mortgage application.