On the 26th April 2014 mortgage lenders will be required to advance loans to their customers under new rules. But the boss of one building society claims that under the new rules a third of borrowers who would be accepted for a mortgage today could be rejected come April.
These new rules are being introduced as a result of the recent mortgage market review (MMR) . The Financial Conduct Authority (FCA) will oversee the new rules which are designed to reinforce consumer protection and will apply across the whole industry.
New mortgage rules for 2014
There are 5 key changes that will effect borrowers in the future.
1. Mortgage interviews will take longer
- The new rules are very prescriptive about giving advice and the process is likely to take longer than before
- Estimates say that an advised sale could take up to two hours, maybe longer, to complete
- It is possible, therefore that some lenders will choose to split the sales process into two separate interview sessions
2. You will need to provide more details about your income and expenditure
- There must be a careful and detailed assessment of the affordability of the mortgage, both initial payments and potential future payments
- If you are self-employed you will need to provide proof of income as well as tax returns and proof of tax paid
- If you want the lender to into account other forms of income you will need to supply documentation as proof
3. There may be an impact on the amount you can borrow
- Lenders will have to ask detailed questions about your spending including credit card and loan repayments as well as child maintenance or alimony payments
- All essential living costs will have to be estimated and included in the assessment
- A 'stress test' will be conducted on the affordability of mortgage payments against higher interest rates over at least 5 years
4. Stricter rules on 'execution-only' transactions
- Choosing an execution-only option means you will not receive advice from a lender or broker
- Full details must be provided concerning the exact mortgage you require including the lender, interest rate, type of mortgage and term required
- The lender will make a declaration that advice has not been provided and, in most cases, will not be protected by rules covering the provision of advice
- Most sales of this type will be online and only offered by a limited number of lenders
5. Interest-only mortgages will still be available but will remain a niche offering
- Not all lenders will offer this option
- You must have a credible strategy to repay the loan and provide evidence to support this strategy
Who will be affected by the new mortgage lending rules?
- Those with a poor credit history
- Anyone with large current debt repayments
- Applicants with new debt just prior to applying for a mortgage
- If you have just started a new job or have had several jobs over a short period
- Applicants who are not on the electoral register
- Anybody who cannot prove their income
- If your current essential outgoings are high
If you think you could be adversely affected by the new rules then speak to an independent mortgage adviser. If you don't know a mortgage adviser whose opinion you trust, then an award winning mortgage adviser and contributor to MoneytotheMasses, is happy to help with a FREE no obligation chat. Click here.