Do you dread the mortgage application and approval process? Truth be told, getting a mortgage in the UK has never been easy, but now, with the new terms of the mortgage market review (MMR) coming into effect, it’s just that little bit more difficult. What does that mean for the man and woman on the street? Let’s take a look.
Net rather than gross income rules the day
The Financial Conduct Authority (FCA) revamped the mortgage market in the UK to make it safer for consumers and more sustainable for the country at large. It also intends to stamp out irresponsible lending and ensure that mortgage advisors and providers are better qualified and trained to give advice to borrowers.
Affordability is the name of the game and so mortgages are no longer calculated according to applicants’ gross income but rather what’s left after all their expenses have been taken into account. And they really do mean all expenses; everything from childcare, takeaways and concerts to dental and pet insurance, pension plans and iTunes purchases are considered.
But that’s not all.
Mortgage lenders are also required to check if you can keep up with the monthly repayments if the interest rates go up. So, your net income has to be able to withstand a (roughly) seven per cent rise in interest.
The additional requirements to the eligibility criteria mean that interviews with bank advisors and mortgage brokers will take longer, with estimates of between two and three hours per meeting. All of the vetting, checking and reviews add to the face-to-face time, which means that brokers, et al., won’t be able to fit in as many meetings per day as before, which means that you could have to wait a pretty long time to get an appointment.
What you can do to facilitate up the process
You can make the process somewhat smoother by ensuring that you are properly prepared. For example, you should be able to provide a comprehensive breakdown of your monthly expenses and you should have all the required documents ready. These include your three most recent payslips, three months of bank statements, pension and investment statements and your P60 form.
You can make your bank statements more mortgage-approval-friendly by cutting back on unnecessary expenses three months prior to your appointment with your advisor. Basically, you should immediately start taking the money-saving approach that you would have taken as soon as your mortgage payments started coming off your account. You know, cut down on movies and dinners out, cigarettes and wine, and chocolates and even mobile apps. You should also try to pay off as much debt as you can to ensure that you have as much disposable income as possible.
You can also save time by choosing an online mortgage provider. This only works if you already know which mortgage deal you want and you don’t require any additional advice. If you’re new to the mortgage game – you’re a first-time buyer or need to remortgage your house – then you should still see a mortgage consultant or broker. Just remember to book early.
A spot of good news
The new approach may make the whole mortgage application process sound more daunting than before, but it provides certain benefits for those who are already financially savvy. For instance, Rupert Jones says that people who live well within their income and keep their expenses to a minimum may qualify for much bigger home loans than if their mortgages were calculated purely on income. In some cases, people may qualify for home loans seven to eight times their income.
It’s also important to note that buy-to-let mortgages aren’t affected by the new MMR rules and that interest-only mortgages will still be available – provided the borrowers can conclusively prove that they have a plan in place to repay the capital.
The new rules came into effect on the 26th of April, 2014, so UK mortgage providers have had some time to wrap their heads around the process. If you still need some help wrapping your head around the mortgage market review, however, feel free to contact Tepilo online estate agents for advice. We’re experts in the UK property market.