New Mortgage Rules - what does this mean for you?

So what’s changed?

On 26 April 2014 new lending rules were introduced by the Financial Conduct Authority (“FCA”) which introduced stricter requirements for both the mortgage lender and the borrower. In short, mortgage lenders are now responsible for assessing whether borrowers can afford the loan in the long term. This can include those who are looking to re-mortgage.

Why has this happened?

The rationale behind this change is to ensure that borrowers are issued with mortgages which they can afford both now and in the future.

Following the housing market crash in 2007 interest rates were rock bottom; now that the economy is steadily improving and property prices increasing, interest rates are expected to increase. The FCA do not want a return to the pre 2007 times where borrowers borrowed too much and struggled with repayments resulting in re-possessions and many people stuck in properties with negative equity.

So what does this mean for me?

There is a requirement for you to take financial advice from either the lender, a mortgage broker or financial advisor in order to find the best deal for you taking into account all your circumstances and whether you can realistically afford the mortgage now and in theanticipated future with higher interest rates - known as “stress-testing”.

There are 27 questions you can expect to be asked ranging from how much do you spend on socialising to have you ever taken out a pay day loan. You will also need to supply detailed proof of earnings for at least 3 months but more likely 6 months. Self-employed people and contract workers will likely receive tougher questions.

These rules are still very new and at this time we have not received any formal statistics on how they have affected borrowing; however experts have warned that thousands of borrowers are likely to be rejected if they do not meet the new requirements.

If you are thinking of buying a house and would like to talk about the legal process involved in purchasing property, please call the conveyancing team for a free no obligation consultation on 0113 320 5000.