Two-thirds of potential buyers in dark about new mortgage rules
The mortgage lender and broker’s findings suggest 31 per cent of people who plan to buy a property within the next two years are unaware mortgage rules were overhauled more than a year ago, while 35 per cent of potential buyers did know mortgage regulations had changed – but were confused by the new rules.
In April 2014, the biggest piece of mortgage regulation in a decade came into force. The changes, brought in by the Financial Conduct Authority (FCA), mean lenders must take additional steps to ensure borrowers only get a mortgage they can afford.
In practice, the new mortgage rules mean borrowers will face increased scrutiny from lenders about their incomes and their expenditure – including spending on things such as childcare, holidays and entertainment.
Yet 70 per cent of those questioned were unaware lenders are required to look closely at their spending. Consequently, a quarter said they haven’t changed their spending habits to help them qualify for a mortgage.
Cutting spending on pensions and insurance
Of those who do know lenders are required to examine spending, more than a fifth have reduced their spending on treats and have stopped contributing to life assurance and pensions to keep a greater proportion of their income in their bank accounts.
Just 24 per cent of aspiring homebuyers questioned were aware that the new rules also test their ability to afford a mortgage if interest rates rise. And even fewer people (16 per cent) knew that the rules would also test their ability to withstand changes to their personal circumstances.
To help clarify the new rules, almost a fifth of potential buyers have sought advice from an independent mortgage broker – with 30 per cent looking online for information about the rules, and 14 per cent relying on friends or family for advice. A third have not sought any advice on applying for a mortgage.
The figures also suggest a third of potential homebuyers are so concerned about tougher mortgage rules they expect to delay buying a house so they can save for a bigger deposit, and secure a stronger position for obtaining a mortgage.
Gareth Shilton, Ocean’s spokesperson, said: “More than a year after the new mortgage rules were introduced, potential buyers are still in a state of confusion about what they mean in reality. Even more worrying is a large chunk of people who are gearing-up to apply for a home loan are not even aware the mortgage rules have changed.
“As an industry, we need to do more to educate buyers and to guide them through a process which many people are finding understandably daunting.
“For anyone who plans to apply for a mortgage in the next year, it’s key their finances are in order, including checking their credit file and gathering all their paperwork early to show as evidence. They would also be wise to cut back on non-essential spending such as takeaways and subscriptions, and to ensure that bills are paid on time so they demonstrate they can consistently live within their means and stick to a budget.”
Read YourMoney.com’s guide to the new mortgage rules here.