PLANNING to buy a new home, or change or extend your existing mortgage?
PLANNING to buy a new home, or change or extend your existing mortgage? If so, brace yourself for a long wait to see a mortgage adviser, lengthy interviews at the bank or a forensic analysis of your spending habits.
However, it’s for a good reason. Mortgage Market Review (MMR) rules, which came into force last April, now make sure borrowers can afford the mortgages they take out - both now and in the future.
The rules were introduced by City regulator the Financial Conduct Authority (FCA) to combat financial meltdown, as witnessed by the 2008 US subprime mortgage crisis.
“In the past, buyers were borrowing too much money and found they were unable to keep up their repayments when the financial crisis struck,” said one mortgage expert. “So–called ‘self–cert’ loans, where borrowers declared their income but did not have to prove or ‘certify’ it, were common and people routinely exaggerated earnings to borrow more.
“Interest–only loans also caused problems. Borrowers flocked to these deals but they had no way to repay the capital at the end of the loan.”
To ensure safer lending in future, mortgage providers are now responsible for assessing whether customers can afford the loan in the long term. This includes buyers and those who are remortgaging and want to increase the size of the loan, vary the time frame or transfer it to a new mortgage.
But nearly a year later, do buyers understand the effects of the Mortgage Market Review (MMR) reforms?
According to a recent survey, nearly half of us do not. Out of the 650 buyers, sellers, landlords and tenants that responded to the survey, 47.6 per cent voted ‘Disagree’ or ‘Unsure’ when asked to respond to the statement “I know how the Mortgage Market Review will impact how much I can borrow”.
So if you’re one of the many people looking to take out a mortgage, make sure you do your homework to establish you can afford it, or have a credible repayment strategy in place.
Henley’s estate agents advise seeking professional advice from mortgage advisers as early as possible.