As we pointed out on 21 January, those wanting a mortgage will be subjected additional financial scrutiny under the new “affordability tests” imposed by the Financial Conduct Authority which come into force at the end of this week called the Mortgage Market Review. Many lenders have already been slowly introducing the procedure since our first article.
Under the new regime, lenders will carry out a thorough “forensic” investigation of a borrower’s finances. An initial mortgage assessment at a branch could last as long as two hours according to Halifax and Santander. Lenders will want to know more details about borrower’s day to day finances, including, how much they earn, spending on food and utility bills every month, gym membership, mobile phone contracts and the size of any existing debts.
It is thought that there could be a mortgage drought as applicants are forced to wait for appointments to be assessed, with properties lost to cash buyers or buy to let investors. Those seeking a mortgage would now be well advised to avoid any lender that is charging high non-refundable application fees. You should also check you spending and look at the guide on How to avoid mortgage rejection.
So what does this mean for the current housing bubble? It means that loans to buy homes will be harder to come by, which in turn will put downward pressure on house prices. This will mean that all those that have rushed to buy a new home to take “advantage” of the Help to Buy scheme, could soon be in negative equity. Whilst the new affordability checks will bring a degree of sanity into the mortgage market and hopefully prevent borrower taking out large loans they cannot afford or understand, you have to ask why this was not brought in much earlier? Surely it would have been better to bring the new rules in after the financial meltdown in 2008, rather than after the seeds have already been sown for another crisis! Has anyone given a thought for all those who have bought at the top of the market, when interest rates are at a 320-year low? How will a price drop of 15-20% affect them especially when interest rates rise to 3% as Carney has said they will by 2017?
What about the taxpayer, underwriting all these loans under Help to Buy (2) – mortgage indemnity? It won’t matter to politicians, as there will not be an imminent election when the market crashes!
As I said in October 2012, “credit crunch mark 2” is due around October 2016.
