Anyone living in the UK (which is likely for a lot of our readers) might be unaware that the mortgage application process in Britain recently underwent a major overhaul. Fuelled by the Mortgage Market Review, regulatory changes have been put in place that might make it trickier for some people to obtain that perfect mortgage.
What is the Mortgage Market Review?
The Mortgage Market Review was a comprehensive review of the UK mortgage market designed to help ensure its sustainability in the future. It was brought into play by the Financial Conduct Authority (FCA), who noted the excessive lending in some quarters to those who might be in danger of missing repayments.
The major changes arising as a result of the review include:
- The movement of responsibility for assessing affordability, which has now moved from mortgage brokers and intermediaries to the lenders. Lenders are now held 100 per cent responsible for assessing both affordability and income of those looking to borrow.
- Any individual conducting mortgage sales will now be required to hold a relevant mortgage qualification.
- Those conducting mortgage sales are now not-permitted to use a non-advised sales process. Under the previous regulations, it was possible for the borrower to select the mortgage product themselves from a number of options. Under the new rules, borrowers will be fully advised by sellers, with the lender or broker responsible for establishing the best product to meet their needs. It is possible for borrowers to choose their mortgage under the ‘execution only’ process.
- Initial disclosure documents are no longer compulsory. However, Key Facts illustrations must be provided to customers, following a recommendation of a mortgage product, when requested by the consumer, or following the selection of a product through the execution-only route.
What does this actually mean?
The new regulations mean that anyone applying for a mortgage will need to provide a greater level of detail in order to demonstrate that they can afford the relevant mortgage. This will involve having to demonstrate both expenditure and income to some depth. With the MMR being set up to minimise lending to those at a higher risk of not making the repayments, those applying will have to demonstrate beyond reasonable doubt that they can afford a mortgage.
How should people prepare?
There are a number of factors that go into demonstrating that you are suitable for a mortgage. These include:
Detailing expenditure. Detailing income has always been a key part of the mortgage application process. Under the new regulations, though, expenditure is also expected to come under renewed scrutiny. Information is likely to be requested on your general spending habits, including how much you spend on things like bills, food, childcare, travel and any other outgoings. Having this information ready will save the borrower time later on.
Your credit history. Credit records have always played a big part in the mortgage application process, and will continue to do so. It’s a good idea to demonstrate fiscal responsibility through making repayments on-time, not having too many credit items in place, and through removing any unnecessary credit (such as cards that are no longer being used).
Demonstrating Stability. Lenders want to lend mortgages to those that are financially stable and responsible. It’s therefore important to provide evidence of stability through things like being on the current electoral roll and having a telephone land-line in place. It’s also a good idea to avoid making any major financial changes in the run-up to your evaluation, such as changing jobs or taking on any more credit. Demonstrating a consistent income stream has always played a key part in the application process, and will continue to do so.