How the new mortgage lending rules affect you
From 26 April 2014, new mortgage lending rules come into force under what is known as the Mortgage Market Review (MMR).
The changes, implemented by the city regulator the Financial Conduct Authority (FCA), are designed to ensure people only take out a mortgage they can afford, and to prevent a recurrence of the irresponsible lending practices of the past.
The rules are aimed at mortgage lenders and advisers but will mean your mortgage application could take longer to complete and may be more complicated. Getting your mortgage approved could also become more difficult.
YourMoney.com provides a quick rundown of how the changes will affect you:
You will need to get advice
Under the new rules, the majority of mortgages will be offered with advice, with a few minor exceptions such as sales to mortgage professionals and ‘high net worth’ borrowers who have an annual income of more than £300,000 or more than £3m in net assets.
You may find deals that were previously available as non-advised or self-service will only be accessible to you through an adviser. This means to progress with your application you will have to seek advice from a lender’s call centre, a branch or a broker.
You will need to provide more detail about your income
Lenders will now be forced to look at your income and expenditure in forensic detail. This means you will have to provide more evidence than before, including six months’ worth of payslips, or three years of bank statements if you are self-employed, and evidence of any bonuses.
Your outgoings will also be heavily scrutinised. While the details required will vary between lenders, you could be asked to reveal what you spend on food, gas and electricity, council tax, leisure, clothes, childcare and credit cards.
For an interest-only mortgage, the lender will need to see your plan for repaying the loan when the interest-only period ends.
Your mortgage interview could take longer
As lenders will have to find out more about your personal circumstance before deciding which product suits you best, your mortgage interview is likely to take longer. Some suggest it could last as long as two hours. Getting a final decision could also take a lot longer. Having all the correct paperwork ready may save you time.
The rules will not just affect first-time buyers
Lenders will not just be focusing on new homebuyers, they will also scrutinise remortgage borrowers, people moving to a new home and those transferring a loan to a new property.