Lenders now require proof of outgoings and financial liabilities and commitments, so they can accurately assess whether you can afford the debt you’re taking on and affordability is stress-tested for potential future increases in interest rates.
Mortgage Broker Stuart Coffin has been working in financial services for more than 30 years.
He explained: “Things have changed markedly since the financial crash. It’s not as easy as saying ‘I earn this amount’ any more. Ever since the FCA mortgage market review in 2014, there have been far more stringent tests to ensure borrowers can afford their repayments, both now and in the future.
“Among the criteria which can impact how much lenders offer, are childcare costs, pension contributions, personal loans and student loan deductions, regular outgoings like gym membership and having credit cards which aren’t paid off each month.”
The father-of-three, who helps buyers at Location Location arrange their mortgages, joked: “Children aren’t a great investment – they cost you forever - I should know! But lenders do take the cost of raising children into account– some look at the average cost of living in your postcode, others ask for three months’ bank statements which they analyse to see what you’re spending.”
Asked whether the more stringent regulations were a good idea, Stuart replied: “Yes, at the end of the day it’s a debt – probably the biggest financial obligation you’ll take on for the next 25-30 years, it makes sense to only borrow what you can afford to repay. Getting good advice about rate, deposit to borrowing ratio and the term of your mortgage could save you a considerable amount and ensure your mortgage is appropriate.
“For example, borrowing over a shorter term, if your budget will allow, could save you a considerable amount over the term of the mortgage.”
It used to be that 45% of buyers went through a mortgage broker, while the rest went direct to lenders. Since the new regulations, around 75% use a broker.
Stuart explained: “A good broker will know which criteria each lender applies, and which suit individual borrowers best, they’ll put forward lenders most likely to make an offer and will carry out the complex task of working out which mortgage offers best value.”
Mortgage applications must be accompanied by documentary evidence of all income - for the employed that means payslips and bank statements and possibly the previous year’s P60s and bonus payslips, whilst for the self-employed it could involve evidencing a short term contract, providing HMRC documentation to support sole trader income, and/or accounts for applicants trading via a Limited Company
Stuart recommends some basic housekeeping before you apply for a mortgage:
If you’re renting, making sure you’re on the electoral roll at your rental address as this will improve your credit rating.
Ensure bank and credit card statements come to your home address.
Try not to use bank overdraft facilities every month and stay within the agreed overdraft facility.
Have a credit card but try to pay off the balance every month. It shows you have wherewithal to handle a financial product with revolving credit and are organised to pay it off.
For the self – employed, ensure all returns and submissions are up to date and, if possible, use a qualified accountant to support you with production of timely documentation when the need arises.
When you switch mobile phone providers, make sure you pay off any outstanding debt with the last provider.
Stuart Coffin advises Location Location on their mortgages, to find out more email firstname.lastname@example.org
Since the new regulations, around 75% use a broker.
Posted 27th March 2018
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