New mortgage rules could lead to thousands denied mortgages
New mortgage rules to be introduced on 26 April, resulting from the Mortgage Market Review (MMR), could result in thousands of eligible people being denied mortgages, brokers warn.
The rules require lenders to be far more diligent about who they lend money to. The Financial Conduct Authority, which is responsible for the changes, wants to make sure the bad old days of mortgages being handed out willy nilly stay firmly in the past.
But brokers warn that the new rules could see perfectly reasonable borrowers denied a mortgage, particularly as affordability will no longer be based on the current mortgage rate (just under 3% today), but also on what the rate might be in a few years' time. Many experts think they will rise to 6 or 7% over the next five years.
Many brokers are already using the new criteria. One mortgage broker told Moneywise a lender had recently asked an applicant to outline his gambling spend as it had noticed a bet he had made on a horse race one weekend.
Another broker told us that some lenders are being over-zealous and making silly mistakes that could adversely affect hopeful homebuyers. He told us that a lender had double-counted an applicant's credit card bill. It counted the monthly repayments in addition to the outstanding balance. And the lender did exactly the same thing with the applicant's interest-free furniture loan.
With some lenders warning that the mortgage interviews they will conduct with applicants approaching them directly could take two and a half hours, Moneywise has put together a list of typical costs lenders are now asking borrowers to provide.
Getting the information to hand will give you the best chance of sailing through your mortgage or remortgage application.
Click here to see what you need to provide to pass the new-style mortgage interview.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.