Michael Royle from Ryder and Dutton comments on how the recent Mortgage Market Review will affect borrowers.
The biggest changes in mortgage regulation in a decade were launched in April, but what differences will borrowers see?
The Mortgage Market Review was implemented by the Financial Conduct Authority on 26th April 2014. These new rules were formulated in the wake of the financial crisis to prevent a return of some of the borrowing seen in the early 2000′s.
In essence, lenders will no longer be able to offer what has, until now, been termed ‘information only’, which many of them have chosen to do when discussing mortgage needs with a potential borrower.
From 26th April almost every mortgage transaction will have to be conducted under an advised process and nearly all mortgage sales will now need to be advised by staff that hold a relevant and suitable professional qualification.
A borrower’s ability to afford the mortgage, both now and in the future, will now be assessed subject to a ‘stress test’ as part of the new regulatory regime, as is evidencing a borrower’s income in all cases. For those buying with smaller deposits and consequently higher LTV mortgages the degree of scrutiny is likely to be higher.
The process of taking out a mortgage is now expected to take longer with the requirement of advisers to be more thorough in ascertaining a borrower’s circumstances than ever before.
Where lenders had previously used income multiples to calculate the amount borrowers were able to borrow, this has now changed to using an affordability model where a borrower’s income and expenditure will be examined to determine what proportion of net income is available to repay a mortgage both today and in the future, if and when interest rates rise as they are expected to at some stage.
Mortgage applicants should be expected to be asked questions by advisers about committed and discretionary outgoings, including how much of their income they spend on utility bills, food, and other household expenditure including insurances, pensions and childcare costs (where appropriate) plus other types of expenditure.
Yet, despite the changes, nearly all borrowers who would have previously been accepted for a mortgage should find that they are still able to access finance, though they should make sure that their finances are in good shape before starting an application process.
The old rules about saving as large a deposit as possible, making sure that your credit history is completely clean and that you are registered on a voters roll, are still ones that borrowers should follow.
Remember, those with bigger deposits will typically have access to the best rates and therefore for first-time buyers who typically have more modest deposits, saving extra could allow them access to products with lower rates.
We would always recommend any potential borrower seeks the services of a whole of market independent mortgage broker, due to everyone’s circumstances being different. A broker will act on your behalf, guide you through all the options available, and will recommend and arrange the most appropriate product for you.
To speak to Michale Royle or arrange an appointment contact us on 01457 862 329 or alternatively email firstname.lastname@example.org.
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