Last year, 85% of all KFH sales were financed with a mortgage, however from the 26th of April 2014, some big changes are coming into effect which could affect future property purchases funded through banks.
The mortgage market reached its heights in 2007, when £362billion of lending was arranged. A large proportion of this was built on high risk lending and borrowing in addition to a range of risky products such as 100%+ mortgages and self-certification of income. While this helped many onto the property ladder and worked well for a good number of buyers, it also caused great financial distress and concern for many others when the global financial markets crashed.
The regulatory framework at that time was not fit for purpose as it proved to be ineffective in controlling the attitudes and practices towards high-risk lending and borrowing. As a result, the FCA (Financial Conduct Authority) has made a number of changes to ensure that we have a mortgage market with responsible lending and borrowing at its core to protect all those concerned.
One of the biggest incoming changes hinges on advice, and most people wanting a mortgage will now be required to responsibly discuss their circumstances and the options available, with advice given by qualified advisors on which mortgage and terms are best for their circumstances. Another big change involves providing evidence of income and, going forward, all people applying for a mortgage will have to evidence their income and demonstrate affordability if they want a lender to agree these terms.
Finally, lenders will be required to apply a stress test to applications, meaning that the customer will have to demonstrate affordability both now and in the future taking into account variables such as any interest rates changes, future credit commitments or changes to their personal circumstances.
Interestingly, many independent brokers such as ourselves have been operating in this manner for many years so these changes won’t be quite as new or disruptive. Many industry figures are however anticipating an initial increase in customers either being rejected for a mortgage or offered alternative terms such as a lower amount for their mortgage or spread over a longer timeframe. Where this happens, it indicates concern about the affordability of the mortgage or the credit worthiness of the borrower. Since all lenders have their own criteria, it would be worthwhile researching another bank or building society to see if they would agree the amount and terms needed. This is where an independent mortgage broker would do the work for you and use their experience and comprehensive knowledge of the market and industry to get you the best deal.
For the best possible chance of a lender agreeing the mortgage, it is important to understand that some preparation will be required before starting the property buying process. Here are some tips to help you get your finance arranged:
- Documentation is everything! Keep up to date bank statements showing your income being paid in, credit card statements, your most recent payslips and also your last P60. A minimum of three months is normally required for bank statements and payslips. If you are self-employed, you will need your SA302’s or certified accounts.
- Have details to hand of new or existing loans or credit arrangements that will become payable during the term of the mortgage along with any personal changes to income, expenditure, job or family circumstances.
- Credit check yourself on a site such as Experian and assess your score and credit worthiness a few months beforehand as this will give you time to get everything in order.
- Even if you think you have found a great deal directly through a bank, speak to an independent mortgage broker too, if only to ensure that it really is the best deal for you.