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

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  • 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
    -1

    Comment number 542.

    @516.Halesowenmum
    "It's the banks that caused these problems giving people the ok to borrow vast sums that [they could] not afford"

    The bank isn't responsible for my understanding of my own financial position, I am. It's up to me to know what I can afford.

    A mortgage is just another product. I don't expect a used car salesman to have my interests at heart. How are banks different?

  • rate this
    +4

    Comment number 541.

    The starting point would be remove the safety net for the banks which they like to use while still paying bonuses. Too Big to fail and its insidious twin "too big to prosecute" Once banks are made to realize they can't dump their poor decisions on the taxpayer and keep the profits, then we can address the underlying fraud in finance and overpriced housing.

  • rate this
    +2

    Comment number 540.

    I agree with more strict controls, the stories of mortgage lending I saw when things went bad in 2008 were absolutely crazy, and tax payers were forced to buy the junk debt.

  • rate this
    +4

    Comment number 539.

    The right questions are not being asked.
    Why are private landlords allowed to charge such a lot?
    Why is there no news about the lack of social housing?
    Why must owning be the answer?
    The answer is profit.
    Most people just want to get a good home without greedy landlords taking 70% of their hard earned money. A safe, affordable, protected, home.
    Lower rents so people can live and save.

  • rate this
    +5

    Comment number 538.

    And the buy to let landlords laugh all the way to the bank as the rental market surges!!

  • rate this
    -1

    Comment number 537.

    When we bought our first house we had to find a huge deposit and paid up to 18% (yes eighteen per cent) interest on the mortgage.

    We could only have a mortgage for an mount of 2/5 times our joint income.

    We did not complain .. just got on with it.

    Now we receive nothing on our savings so that others can have cheap loans of massive amounts of cash ...

  • rate this
    +2

    Comment number 536.

    When I bought my first house, the Building Society limited my mortgage to two and a half times my salary. Interest rates then were approx. 7%. At one stage I was paying as much as 15% interest on my mortgage. Building Societies would ONLY lend if you were going to live in the house yourself!! Beware, your situation (or the economy) could change tomorrow, but your mortgage is for 25 years or more!

  • rate this
    +2

    Comment number 535.

    This will bring about some sense to a market threatening to get out of hand again.
    Houses are meant to be homes not nooses around necks.

  • rate this
    +3

    Comment number 534.

    Low housing stock + reduced mortgage lending = buy to let heaven, Happy landlords. Disenchanted tenants. Happy banks as interest rates are higher and no affordability checks = artificially high house prices and rents. I've been trying to tell my local Con MP for two years now about the society this government is creating. Unfortunately got shown the door as he has other matters to deal with.

  • rate this
    +2

    Comment number 533.

    The travails of 'homebuyer Claire' sound just awful. One wonders what brought her to the attention of the BBC?

    Maybe they should check to ensure she is not also appearing in less than full disclosure political promo pieces as a ringer.. unless it's BBC QT, of course. Perfectly OK then.

    @trilby99: @AliceBhand Hey Alice was that your sister being interviewed on BBC @BBCBreakfast this morning? :)

  • rate this
    +1

    Comment number 532.

    The goverment are trying to cool the property market, they know its a bubble waiting to burst once interest rates start rising. A complete false economy and the goverment know it...but hey ho theres an election coming..

  • 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
    +3

    Comment number 530.

    Successive govt have sold off housing stock to tenants on the cheap & what houses have been built in return are let out for low rents for life regardless of if the tenants later starts earning good salary's therefore we have low govt housing stocks.

    Of course private builders will make hay while the sun is shining so no wonder house prices have risen so high.

    Govt housing policy is a useless!

  • rate this
    -16

    Comment number 529.

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

  • rate this
    +4

    Comment number 528.

    If I want to loan some of my dosh to some one then it's up to me to make what checks I see fit, and no business of anyone else. If I lose the dosh, because the borrower dose a bunk, or goes bust, that's my hard luck. Why should it be any different for banks etc? Regulations cost - and you and I pay for it. Until we have a few banks go bankrupt we'll be forever paying to regulate a broken system.

  • rate this
    +3

    Comment number 527.

    Buy-to-let loans should be forbidden as a next step!

    Foureign investors into housing should be massivly restricted, with a 75% capital gains tax!

    Speculation on housing, a basic living need, has to stop!

  • rate this
    +2

    Comment number 526.

    is it possible to have a mortgage direct from the BoE so my interest payments go indirectly back to me/taxpayer rather than making the rich richer off of my back?

  • rate this
    +2

    Comment number 525.

    Wage stagnantion since the 70's...

    House price inflation since the 70's...

    ... can anybody else see a problem here?

    If the banks follow through with this promise it means that the majority of people will not be able to own a home - this congeals property and wealth into the hands of those who already have either property and/or wealth.

    I can see why some people approve...

  • 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
    +3

    Comment number 523.

    The affordability test is an essential and will save a lot of people financial grief when interest rates rise. As they most certainly will.

 

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