New mortgage 'stress' test.......
Mortgage applicants face tougher questions about their lifestyle, under new rules that take effect on Saturday. The changes are designed to "hardwire common sense" into the mortgage application process, the Financial Conduct Authority (FCA) said. Questions from lenders about customers' regular outgoings - including childcare costs and even haircuts - could be included in affordability checks.
Brokers say the changes could lead to delays and rejections of applications. The Council of Mortgage Lenders (CML) said the transition to the new rules would be smooth, despite it being the biggest change to the mortgage market for more than a decade.
And many lenders have already changed their systems so they comply with the new rules. The rules - known as the Mortgage Market Review (MMR) - are designed to protect consumers from the kind of reckless mortgage lending that would leave them unable to make repayments. They were drawn up during the financial crisis and originally planned to come into force last summer but changes were made following consultation with lenders.
At their heart is a new affordability check, that will see applicants interviewed by a lender and asked about their income and outgoings. Martin Wheatley, the chief executive of the FCA, told the BBC: "The core principle is a very sensible one - lend to people what they can afford to repay. "We've come out of a period, particularly in 2008-09, when there was no attempt to verify people's ability to pay, and we've ended up with lots of payment problems, lots of people in mortgages that are problematic for them, and if we had a different interest rate environment we'd see a lot of foreclosures."
Previously, many mortgage offers were based on a multiple of the buyer or homeowner's income. Now, more consideration will be given to the household budget and how much spare money is available to them. That is likely to mean more detailed checks with questions asked about anything from subscriptions to childcare costs. Applicants will be expected to explain if they are predicting any significant change in their income or spending