Tighter mortgage lending rules came into force on 26 April 2014 following the Mortgage Market Review.
It passes greater responsibility onto lenders in an attempt to protect consumers and prevent a return to the alleged irresponsible lending that took place in the run up to the credit crisis. Lenders are now required to fully understand the financial circumstances of potential borrowers.
What does this mean for borrowers?
Borrowers must undergo a number of checks to assess their ability to afford repayments.This may include producing past bank statements and being asked about such things as spending on holidays, nights out, food and even gym memberships!
A tress-test will also be applied by Lenders to assess a borrower ability to afford repayments if interest rates increase in the future.
It might be argued that an individual expenditure will inevitably shrink after obtaining a mortgage, brought about by the new necessity to make mortgage repayments. Therefore, an individual expenditure before obtaining a mortgage should not be assessed so rigorously. However, he new rules suggest that the regulators prefer that borrowers receive professional advice on their expenditure rather than be left to their own devices. It would seem logical for borrowers to cut their spending as much as possible a few months before applying for a mortgage.
Borrowers seeking an Interest-Only mortgage must evidence a credible strategy for repaying the loan and cannot merely rely on predicted house price rises.
Mortgage applications are likely to take longer as a result of these assessments and the lengthier advisory process.
What will be the impact on the property market as a whole?
None of us have a crystal ball and predicating how the new rules will affect the property market is difficult.
The last 12 months has indicated the welcome return of consumer confidence to the market, possibly aided by the introduction of the Help-to-Buy Scheme. Some are apprehensive about the market overheating and hope the new rules will dampen apparent overenthusiastic growth.Some however suggest that the impact will be minimal as many lenders have already been phasing in the new rules over the past 18 months.
The new rules mark another milestone in encouraging recovery in the property market, but in terms of the long term impact, only time will tell.
If you have any questions, please do not hesitate to give the Emsleys Property Team a call on 0113 264 4414.Back to Blog