Since its introduction last April, the Mortgage Market Review (MMR) has been getting would-be homeowners into a bit of a muddle. Many are unsure what the new rules actually mean for them and their ability to get a mortgage. Its inception comes down to one thing: for years banks lent money to those who simply didn’t have the means to pay it back or in the event of an interest rate hike find themselves financially struggling. While it’s not true to say that getting a mortgage was ever easy, now borrowers are finding themselves having to jump through hoops just to be in with a chance. So, one year on what changes have been made to the mortgage process? Let’s find out from West End estate agent, LDG…
Tighter Attention To Your Earnings
In the first place, tighter attention is paid to proving what you actually earn. Before, borrowers only had to declare their income and not actually provide evidence. These were called ‘self cert loans’ and often led to people exaggerating their monthly pay packets. Others simply got interest only loans; but this also caused problems within the market. This type of loan was popular as the repayments were lower; but many struggled to pay off the balance at the end of the loan. These options are no longer available thanks to MMR, therefore forcing mortgage providers to be far more stringent and investigate customers properly who they lend to.
A Three Hour Interview
The investigation takes the form of a three hour interview during which your finances will be put under the microscope. It’s not just how much you earn that is up for scrutiny; but your outgoings as well. You’ll even be asked how much money you have left over at the end of the month. In a survey conducted by Experian of those who had been rejected for a mortgage, 13% did not know how much money they had to play with at the end of the month.
A Look At Deposits
However, it’s not just your financial situation that you have to worry about. Deposits these days are much higher than they were 10 years ago. Typically you will have to find 40% of the total cost of a house, meaning that if a house costs £150,000 your deposit would be £60,000. This change is yet another major factor in locking people out of the market – but interestingly 23% of people actually believed deposits have gone down and 62% had no idea they would actually require bigger deposits than before.
It should come as no surprise then that at least 25% of those surveyed claimed that MMR had played a significant role in their inability to qualify for mortgage but; in addition, 11% had no idea why they had been turned down in the first place. Should you be refused a mortgage it’s crucial to actually ask the lender why you have been turned down and how you can improve your chances in the future.
The point is that mortgage lenders are no longer relaxed about who they lend to. You can increase your chances by early payment of outstanding debt, closely monitoring your expenditure and finding ways to cut back wherever possible. Always make sure you have money left over at the end of the month should disaster strike and you have to get your car fixed or pay to repair a broken boiler. Keeping track of all these things will take time. Ultimately, the more information you can provide and the more you can give the lender a clear picture of your finances, the more likely they will view your application favourably; thus taking you down the road to successful homeownership.