Mortgage affordability: a licence to grill?
Anyone with a joint account knows how awkward it can sometimes be to justify an impulse buy to our other half.
So imagine a complete stranger picking and prying through your outgoings, arching a disapproving eyebrow at your booze budget, the price of those designer shoes, football tickets or food bill.
Believe the hype and prospective home-buyers are now being forced to sit and suffer just such value judgements - which could ruin their chances of getting a mortgage.
“Affordability” is the headline-hogging watchword under new rules - known as the Mortgage Market Review (MMR) - introduced by the Financial Conduct Authority (FCA) to tighten up mortgage lending.
The FCA introduced the rules in April to prevent a repeat of the 2008 financial crisis. Lenders must make sure a potential borrower can afford the repayments on their home mortgage now and in the event of interest-rate rises by gathering evidence about their finances and assessing spending habits.
Supporters say affordability brings an injection of common sense into the market as borrowers will no longer be allowed to overstretch themselves.
Critics argue that affordability is a snooper’s charter. It will, they say, make getting a mortgage or remortgaging your home more difficult and penalise certain lifestyle choices. So where does the truth lie?
Mortgage expert Ben Osgood, from Nottingham Mortgage Services (NMS) believes borrowers have little to fear. Advisers from NMS - a wholly owned subsidiary of The Nottingham - search the whole of the mortgage market to find customers the best deals. With up to 600 mortgage applications in the system at any one time, NMS are better qualified than most to see the impact of the new rules.
“Affordability is a tool to understand customer circumstances,” says senior manager Ben. “It is wrong to present it as this big, scary thing.”
Advisers from responsible brokers such as NMS have always sought to understand what customers can afford - and build a sensible buffer to ensure they can meet mortgage repayments in the event of rate rises or changes in their circumstances. It is this knowledge that ensures borrowers get the right mortgage from the right lender at the right price over the right term with the flexibility that suits them.
No-one at NMS will make a value-judgement about what you spend your money on, stresses Ben. They just need to establish that you are not spending more than you’re earning and that your mortgage will be affordable.
Every lender must comply with MMR. It is now a legal requirement for them to collect evidence of your income and expenditure.
How they apply their own in-house affordability criteria within the rules of MMR will differ. Some lenders will factor so-called “non-committed expenditure” - such as the money you might spend on haircuts or a game of golf every Saturday that could easily be saved if the need arose - into their calculations. Others will take a different view.
This is where an informed, impartial whole of market mortgage broker such as NMS can be invaluable. NMS advisers understand the small-print of each lender’s rules and can ensure borrowers are not caught out by it.
“Our advisers really add value in this area,” says Ben. “Affordability is a good thing. As advisers, we are doing what we have always done: understanding people’s needs, searching the market and matching them up with the best product for them.”
To take advantage of our free initial mortgage consultation call us today on 0344 481 0013 or read more about getting a mortgage.