Did you know that on the 26 April 2014 the rules to getting a mortgage changed? Why? “In the past too many people got a mortgage by simply telling their lender they would have no problem repaying their debt, and that was that,” said Martin Wheatley, chief executive of the Financial Conduct Authority (FCA). “Our new rules will hardwire common sense into mortgage lending.”
The changes do not only affect first time buyers but also those looking to re-mortgage. The main area of concern for homebuyers and owners is the “stress” test. This is a more intrusive process than we are used to which means that taking out a mortgage could take longer than before.
The stress test has been introduced so lenders can check your ability to repay your mortgage should the interest rates rise. With mortgage rates being low for some time a dramatic rise could seriously affect some peoples ability to repay. Surely the changes are sensible and a good thing?
Stress testing will determine if you can afford the repayments with the money spare in your family budget. This means that even utilities, your cost for commuting, membership/subscriptions, cost of living, clothes, personal goods and childcare costs will all be taken into account.
How to prepare for the stress test.
It has been advised that before you apply for a mortgage that you try and pay off any outstanding debts, cancel unused and unnecessary memberships/subscriptions and cut back on spending for at least 3 months prior to applying.
Gavin Littlejohn, founder of the Money Dashboard website, says borrowers can prepare for the new regime “by properly budgeting and showing consistent behaviour of being able to live within their means”.
The Council of Mortgage Lenders suggest that prior to your meeting with the lender that you anticipate the questions that may be asked and have the relevant documentation available such as pay slips and bank statements.
The changes make seem drastic but I am sure you will agree it’s better to go through a stress test than risk loosing your home.
Contact James Ryan today about where to get the best advise on the new mortgage rules on 020 8455 1014.