McHale & Co. Solicitors Blog

Are you aware of the New Mortgage Rules?

Did you know there is just under 10 million outstanding mortgages, today, in the UK. That's a lot of money owing considering the property prices in London!  You do the maths.

A mortgage is of course the biggest debt that you will face during your lifetime. Over the last couple of years borrowers have found it cheaper to mortgage a property than to rent from a landlord.  However, when the market crashed, some people encountered financial difficulties, had to sell up and in some cases fell into negative equity which has affected their credit score.  Unfortunately landlords have taken advantage of this as the cost of renting a property has increased dramatically since.  Great news for landlords though!

Before the market crashed, you will agree that the housing market was booming, sales were frequent, and lenders were keen to advance individuals a mortgage.  Some lenders were offering up to 110% mortgages. Gifted deposits were acceptable, allowances for works due to properties were also agreed. But here we are today and none of the above is accepted apart from gifted deposits in some cases. All incentives need to be reported to the lender.

Now the rules governing as to who can secure a home loan are more rigorous.  Will this cause a further problem with the housing market?  How will it affect you? Remember, this is not just for purchasing a property, this situation will arise when you come to remortgage. If your fixed rate term is due to come to an end and you cannot obtain a better deal from another lender on application because of the new regulations in place then you will of course move on to your current lenders standard variable rate (SVR). Your repayments will increase.

The new system, which came into force on 26 April 2014 ensures that lenders conduct a full affordability check on mortgage applicants.  What is affordability you may ask? Well, it's simple, where does your monthly/weekly salary go? Are you responsible enough with your finances? What are your current credit commitments? Do you have too many? Well, that's up to the lender.

This, in my opinion, will have major practical implications for the amount that the Bank will lend to the borrower and also affect the length of time that an application might take.  Mortgage applications can be a time consuming exercise and somewhat tedious. Are you on the electrol roll? Do you have proof of residence? I have found recently that borrowers receive all of their household/credit card bills online. Obtaining hardcopies of these from the provider, for the lender can be time consuming and this then causes a delay throughout the conveyancing process.

What is the reason for the change in the application procedure? It is clear that the lenders goal is to prevent any return of the pre-crisis mortgage lending that many described as "reckless".  What would you class as reckless? Gambling, numerous loans or how about a car on HP?

Under the new rules lenders say the reason for the implementation of the new rules is to hardwire common sense into mortgage lending. Contradictory really considering the government want the housing market to pick up and also offering 5% deposit mortgages.

Do you want to know more about this implementation? Ok, basically the lender will ask you more questions than previously about your lifestyle. Do you pay child care fees? How about opticians? Monthly contact lenses? How many dependants do you have? Do you pay maintenance? Loan repayments, store cards, credit cards etc. Even service charge and ground rent on apartments. The list is exhaustive.

Borrowers may previously have been in a position where they may have been able to get a mortgage, whereas now they discover that the lender is only prepared to offer a smaller amount, or may unfortunately reject the application as a whole.

This will not only just affect first-time buyers, but also those looking to remortgage.

One reason for this is that a lender has to "stress test" a customer's ability to repay if interest rates were to rise.

How is potential difficulty calculated?

The Bank rate is at a world record low at the moment and has been for a few years now.  It has dropped from 4% to 0.5% which then causes the mortgage rates to be lower than previous years meaning you pay less back.

A lender, who might be offering a mortgage with an interest rate of less than 4% now, will have to decide whether an applicant would be able to make regular repayments if the rate rose to something like 7%.  Could you cope if this happened?


In order to decide, the lender will not only take account of income, but of outgoings too.

What questions could you be asked when you apply?

The lender is interested in how much money is spare in a borrower's personal budget. So any regular payments could be asked about and will be asked during the application process.

This could range from the cost of regular haircuts, gambling, smoking, gym memberships, online subscriptions, online ordering and deliveries, holidays abroad, travel costs to and from work, lunch during the week, even a football/rugby season tickets and childcare costs.

Is your financial position going to change? How will you know?  The lender will take all this into consideration. They may even take in to account the position if you plan on extending your family!

I have heard that The Council of Mortgage Lenders says the process in relation to the new rules will be "smooth".

My advice to you all before applying for a mortgage is preparing a statement/spreadsheet which clearly sets out your income and expenditure and then visit a mortgage website and complete an online affordability calculator which will, after you have input the data, provide you with a rough estimate of the loan the bank would be perhaps willing to lend.  Try it.  Will it be sufficient to enable you to purchase your dream home?

If you require any mortgage advance in this regard, please do not hesitate to contact us and we can put you in contact with a financial advisor.

Good luck

Categories: Conveyancing

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