Tougher lending rules for mortgage borrowers
New mortgage lending rules have recently been introduced by the Financial Conduct Authority (FCA). As a result, you may now face tougher checks whether you are buying a new home or remortgaging. Buy-to-let mortgages, however, are generally unaffected.
The development of the mortgage market review has been a lengthy process. It started with a discussion paper in 2009, and the FCA finally introduced the rules with effect from 26 April this year.
The new rules require lenders to verify your income in all cases, rendering self-certified mortgages a thing of the past. The lender will also have to take account of your committed and basic household expenditure to ensure that you can afford the mortgage repayments.
Previously, lenders generally used income multiples to establish the maximum loan they were prepared to advance, but this is no longer the key criterion. As well as making sure you have enough disposable income to repay the mortgage at current interest rates, lenders also have to consider the impact on repayments of possible future interest rate rises over the next five years and whether borrowers will still be able to afford them. Although interest only mortgages are still permitted, there must be a credible strategy for repaying the capital – the intended future sale of the property is unlikely to be a satisfactory approach.
It may take some time for things to settle down, with even the FCA criticising lenders for an over- zealous application of what are its own new mortgage lending rules.
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