Changes to UK mortgage rules come into force on Saturday, April 26, under what is known as the Mortgage Market Review (MMR) – and could reduce some demand from buyers who may find that an application takes longer to process, or a home loan becomes harder to secure.
The rules, which have already been implemented by many lenders, are aimed at reducing the likelihood of excessive borrowing.
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.
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.
Deals that were previously available as non-advised or self-service will only be accessible to you through an adviser.
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.
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.
Lenders will not just be focusing on new home buyers, they will also scrutinise remortgage borrowers, people moving to a new home and those transferring a loan to a new property.
- Details correct at time of writing. (April 2014).