What does the Mortgage Market Review mean for home buyers?
What do these new rules introduced in April this year and known as the Mortgage Market Review, mean to you?
When you apply for a mortgage some lenders are now requesting that you provide 6 months bank statements and payslips instead of the 3 months previously required.
The interview for a mortgage application will last between 2.5 to 3 hours and be prepared to answer intrusive questions about your spending habits and plans for the future.
Unless you are a high net worth individual you will also need to take advice from the lender, an independent financial advisor or a mortgage broker. The purpose of the interview is to ensure that you understand the pros and cons of the different mortgage deals on offer.
Preparation is key
Before you apply for a mortgage, get your house in order and by that we mean scrutinise your bank statements. The lender will look out for any regular payments that may compromise your ability to repay your mortgage. Do the calculations yourself, could you make your mortgage payments if you continued with your current spending pattern? Do you repay your credit cards on time? Do you have any debt? Would you pass the interest stress test applied to all new mortgage applications, meaning if interest rates increased would you struggle with your mortgage payments? Look through your direct debits, is everything really necessary? Make any necessary adjustments to your spending patterns before you apply for a mortgage and make sure that you haven't missed any payments on credit cards or loans. If you use an overdraft facility make sure that it is decreasing each month rather than increasing before you apply for your mortgage.
For some buyers their mortgage repayments would be less than the rent they are currently paying but this is not taken into account by the lender.
Will the new mortgage rules affect the market?
It's too early to say by how much this will affect the property market in the 3rd and 4th quarters of 2014 but for 3 consecutive months the Bank of England has reported falling mortgage approvals. This may be a result of an initial over-zealous interpretation of the guidance. Some buyers are finding their “agreed in principle” mortgage has now been rejected. Estate agents are reporting that sales which had been agreed on the basis of a buyer with a mortgage agreed in principle are now falling through. Sales are also taking longer as lenders struggle with the additional processing of the documentation.
Is it a good policy?
Yes, although the additional paperwork is irritating if you are applying for a mortgage. The new rules are there to prevent the type of irresponsible lending which led to the last crisis. Technically the new rules should help to ease the pressure on the housing market. June has seen a slight cooling of the London market and slower growth elsewhere. Whether this is a direct result of the MMR and will continue remains to be seen.
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