From this Saturday onwards, those looking to jump onto the property ladder could be in for a bit of a shock when they go and apply for a mortgage. Applicants will now have to endure arduous and intrusive questions just to check that they can definitely afford to pay back their loan.
The new interview style checks are being introduced by City Watchdog and the Financial Conduct Authority, and it isn’t just new homeowners that will have to go through them, those who have taken out mortgages before will still have to pass in order to get a new loan.
It used to be relatively easy to get a mortgage, simply going through a few credit checks and filling out your details. Lenders were asked how big their deposit was and how much they wanted to borrow, and all the documentation needed was a wage slip and bank statement.
With the recent crack down, mortgage lenders will now have to go into a more detailed analysis of your lifestyle and situation, with some current borrowers finding that they don’t pass the application process, even if they comfortably pay their loan back at the moment.
The idea of the affordability test is to ensure that those looking to take out a loan are financially stable enough that, should interest rates rise considerably, they would still be able to comfortably make repayments.
There are currently some good mortgage rate deals available, but the FCA think that banks would be more reluctant to offer these better deals if borrowers could end up in trouble down the line should interest rates suddenly jump.
Martin Wheatley, chief executive of the FCA, said:
“As a general rule, we have some concerns about those short-term teaser rates that suck people into something. The question we have to ask is: can you afford whatever it resets to at the end of that rate?”
The new affordability test is designed to question all outgoings in life to find out just how financially stable applicants really are. It will ask about how much they spend on rent, travel, entertainment, childcare and more. It could even get personal and ask whether couples are planning on starting a family in the near future, as this could affect their finances.
There are some potentially controversial problems with this however, as couples who have recently found out they are expecting a baby do not usually tell friends and family about it until after 12 weeks, so should they really have to tell the bank?
Another change is going to be with the decrease in interest-only mortgages available. These were previously enabling lenders to apply for a bigger loan, but with stricter rules now being enforced, lenders will have to show a long term saving plan in place to borrow a certain amount of money.
The new applications are going to take much longer and involve more paperwork. Applicants will need to fill out one or two questionnaires about their incomings and outgoings as well as sending in wage slips, bank statement and tax returns.
There will also be a 20 minute interview before applicants are given an appointment for a longer, more in-depth interview about their life – these can be done either over the phone or in-branch. These interviews alone may take a few weeks just to organise.
The changes to the mortgage application process will certainly affect the number of people moving home or taking their first step onto the property ladder. With such a complicated process to go through it could put many people off and will also dramatically reduce the amount of successful applicants who can then go on to buy a home.
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