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Blog: the problem with the new mortgage rules

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08/02/2015
The last time I applied for a mortgage it was in July 2008, two months before the Lehman Brothers collapse and the widespread disintegration of the Western banking system.

In those giddy days, high street banks were falling over themselves to lend money: Self-employed? No problem. Low deposit? Meh. They certainly didn’t care how much I spent on childcare, heating or, even, shoes.

But that was then. Applying for a mortgage now includes an Orwellian-style interrogation. The emphasis since the new mortgage rules were introduced in April last year is on ‘affordability’, which sounds rational enough: What could be more sensible than not simply lending according to what people receive, but also by looking at what they can realistically afford to pay? However, there are – I would suggest – a number of problems with this approach.

First, it seems to take no account of the fact that large swathes of spending are discretionary. Knowing what I spend on shoes would be pertinent if I was in thrall to some kind of shoe-buying compulsion (I’m not, really I’m not); or perhaps if I did a lot of walking for my job and therefore wore out a lot of shoes. If it made the difference between losing my house or not losing my house the chances are that even I would spend a little less on shoes.

Shoes is a trivial example, but mortgage providers also now want to know how much you put into pensions and savings every month, because that too will affect ‘affordability’. Setting aside that this would seem to discourage prudent behaviour, it is also only relevant if you are in some way compelled to do it. No-one is compelled to set money aside in a personal savings or pension product.

Also, having looked at how much you save, might it not be relevant to then look at the level of your savings? After all, surely, when looking at affordability, it is important to determine whether individuals might have money set aside with which to pay their mortgage in the event of a crisis. As a prudent sort of person (shoes aside), I have savings that would cover my mortgage in full for over two years, yet no mortgage provider has thought that worthy of consideration.

As you might have gathered from the tone of this blog, I have recently been turned down for a remortgage after failing to jump through all the relevant (or irrelevant) hoops. I am not alone – a new survey from the Intermediary Mortgage Lenders Association found that the percentage of mortgage brokers who were unable to help at least one customer find a mortgage deal has risen to 84% compared to 78% in July 2014, and three-quarters of brokers believe that lenders are too conservative.

In many ways I feel I should be applauding the fact that mortgage lenders are shutting up shop, refusing to lend to shoe-fetishists and people who wantonly save into pensions. After all, isn’t it loose lending practices that got us all into trouble in the first place?

The trouble is, the current approach doesn’t feel any more rational. Lenders are still lending on the basis of tick boxes and standardised criteria without involving any real human judgement in the process. Any employed person can be out on their ear in three months or less, and yet they are still considered a better lending prospect than a self-employed person with a lengthy accounting history and client list.

So I go back, cap in hand to lenders who were fighting to lend just five short years ago, and hope that someone will overlook my (discretionary) spending habits to grant my – very reasonable – mortgage application. This time, I will be turning to those lenders who claim to base their judgements on good, old-fashioned lending practices, such as Handelsbanken, rather than the high street giants, who still rely on the computer saying yes.

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