Are you a mortgage misfit?

Obtaining a mortgage has always been something to take seriously. However, on April 26^th the process changed, and the consequences could be substantial for future borrowers.

The Mortgage Market Review (MMR) was a comprehensive, five year review into the mortgage market, conducted by what’s now known as the Financial Conduct Authority (FCA). The FCA considered it necessary to change the application process in order to ensure irresponsible lending was minimised.

A number of regulatory changes have taken place as a result of the research obtained by the MMR. These include:

• The elimination of non-advised sales processes for lenders and mortgage brokers. The non-advised sales process allowed borrowers to select their own mortgage product from the available options. Under the advised process, all lenders will fully advise potential borrowers and will be charged with establishing the best mortgage for them. The customer will still have the option of selecting their product without intervention from the lender through execution only either online or through the post.
• Responsibility for affordability has moved from brokers and intermediaries to the lenders themselves, who are now charged with both assessing affordability and verifying income and expenditure.
• Any individual conducting mortgage sales will be required to hold a relevant mortgage qualification.

What does this mean for normal people?

The regulatory changes were put in place in order to minimise lending to those at risk of not making their repayments. As a result, those that are applying will need to ensure that they can thoroughly demonstrate that the mortgage they’re applying for is within reach, and that they are financially stable. A number of factors go into this:

Expenditure. As well as demonstrating income, users will need to demonstrate their expenditure, to check the mortgage meets the affordability requirements of MMR. Details requested will include childcare, household bills and expenditure on food, travel, entertainment and holidays, amongst others.

Debts and credit. Credit history has always played a big part in the mortgage application process, and this isn’t about to change. Potential borrowers should demonstrate that they pay-off debts on time, keep their accessible credit to a relatively low level, and that wherever possible they pay off existing debts in full. If there is too much debt against your name, then the lender might consider it risky to provide any more.

General financial stability. In addition to credit, it’s also possible to demonstrate more general financial stability. This can be achieved by ensuring that you are on the current electoral roll and by having an existing telephone land-line in place. It can also be demonstrated by not making any major changes in the run up to the application, such as changing job or taking on any additional credit. Demonstrating a steady income remains, as ever, a key part of the application.

To find out more about the mortgage market review, visit the Ipswich Building Society are you a mortgage misfit infographic.