Lifestyle quiz to secure a mortgage

 

Homebuyer Claire Bhandhukravi said she found the process "daunting"

Mortgage applicants face tougher questions about their lifestyle, under new rules that take effect on Saturday.

The changes are designed to "hardwire common sense" into the mortgage application process, the Financial Conduct Authority (FCA) said.

Questions from lenders about customers' regular outgoings - including childcare costs and even haircuts - could be included in affordability checks.

Brokers say the changes could lead to delays and rejections of applications.

The Council of Mortgage Lenders (CML) said the transition to the new rules would be smooth, despite it being the biggest change to the mortgage market for more than a decade.

And many lenders have already changed their systems so they comply with the new rules.

'Sensible' move

The rules - known as the Mortgage Market Review (MMR) - are designed to protect consumers from the kind of reckless mortgage lending that would leave them unable to make repayments.

BBC housing calculator

Renting example
  • Lets you see where you can afford to live - and if it would it be cheaper to rent or buy
  • Enter how many bedrooms, which end of the market and how much you want to pay each month
  • As you move the payment slider, parts of the UK light up to show you where you can afford
  • Based on pricing and rental data from residential property analysts Hometrack

They were drawn up during the financial crisis and originally planned to come into force last summer but changes were made following consultation with lenders.

At their heart is a new affordability check, that will see applicants interviewed by a lender and asked about their income and outgoings.

Martin Wheatley, the chief executive of the FCA, told the BBC: "The core principle is a very sensible one - lend to people what they can afford to repay.

"We've come out of a period, particularly in 2008-09, when there was no attempt to verify people's ability to pay, and we've ended up with lots of payment problems, lots of people in mortgages that are problematic for them, and if we had a different interest rate environment we'd see a lot of foreclosures."

'Stress test'

Previously, many mortgage offers were based on a multiple of the buyer or homeowner's income. Now, more consideration will be given to the household budget and how much spare money is available to them.

That is likely to mean more detailed checks, with questions asked about anything from subscriptions to childcare costs.

Applicants will be expected to explain if they are predicting any significant change in their income or spending.

Mortgage application form The rules are aimed at reducing the chance of reckless lending

Lenders will also have to "stress test" an applicant's ability to repay if interest rates increased over a five-year period. This is expected to lead to some applications being rejected.

However, the Building Societies Association (BSA) said this did not mean that those on lower incomes or those only able to offer a small deposit would be frozen out of the property market.

Paul Broadhead, head of mortgage policy at the BSA, said: "It is understandable that people are concerned about the changes to the mortgage application process - however, it is vital that this new regime does not dent consumer confidence or sentiment in the housing market.

"It is highly unlikely that a single purchase or category of expenditure will make the difference between yes or no decisions."

Start Quote

Some lenders are going too far - but it does vary considerably from lender to lender”

End Quote Ray Boulger Mortgage broker John Charcol

However, mortgage customer Claire Bhandhukravi said that a loan that she had taken out to buy a car had "thrown a spanner in the works" when applying for a mortgage.

"It resulted in me getting less money, and the whole process took even longer," she said.

Peter Hill, the chief executive of the Leeds Building Society, told the BBC that research carried out when the changes were being drawn up indicated that in a normal mortgage market the new rules would probably affect about 2.5% of borrowers.

"In a more buoyant market, possibly a market that's starting to overheat, that could be as much as 11%, so I think the impact's going to be much smaller than some people fear," he added.

Mortgage lenders have had to train staff in the new rules, but the extra pressure on time could mean the process of securing a mortgage to buy a home could take longer.

Ray Boulger, from mortgage advisers John Charcol, told the BBC that while some of the checks were common sense, he thought some were unnecessary.

"When it gets down to asking for detail on non-essential expenditure, which we know in practice that people tend to cut back on if they need to, that's where I think some lenders are going too far - but it does vary considerably from lender to lender."

 

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  • rate this
    +20

    Comment number 839.

    My first house was bought in 1987 when interest rates were 10% and climbing, eventually they hit 15%.
    So i have my own stress test its called "common sense" if i cannot afford it i dont buy it, its really simple.

  • rate this
    +34

    Comment number 531.

    I can't see that there's a downside to this. If you are going to borrow money, wouldn't you want to make sure that you can afford it anyway? Having someone validate your numbers should just give you extra security. It's going back to the way it used to be...

  • rate this
    -16

    Comment number 529.

    This just pushes us further towards being a country of renters - trapped in indentured servitude.

  • rate this
    +32

    Comment number 524.

    I'm hoping to get a mortgage for the first time this year and I'm happy to have these checks. Of course I want the mortgage, but I also want to know I can pay it back and I can afford to live while paying for it. It seems to make sense for both parties.

  • rate this
    +7

    Comment number 476.

    It is almost laughable how things move on , not long ago the banks were providing 110% mortgages , lending big multiples of annual earnings , not checking properly peoples self certified incomes .

    I am pleased some sanity prevails but you cannot be too invasive into peoples personal lives . I think it better to just provide bank statements for the last 2 years .

 

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