With many lenders now adjusting to new processes in the wake of the biggest change to the mortgage market in many years, we can now look at just what this means to you, in real terms.
What used to happen, in what older brokers may call the ‘good old days’, is that you’d have called a bank and had a very high-level conversation with one of their ‘advisers’ and probably come out the other side with an Agreement in Principle.
You went out, found a house, and then sent in a mortgage application which, if you had a fairly healthy deposit, probably sailed through at breakneck speed.
Under new regulations introduced last week in the wake of the Mortgage Market Review, that process really is a thing of the past.
That old-fashioned approach from lenders was based purely on risk profiles rather than affordability, so in essence, if they felt that they had a very good chance of getting their money back if you failed to maintain payments, then you would get the mortgage.
Now, the onus is very much on verifying affordability of any loan. Even with as much as a 90% deposit, you will still have to prove that you can afford the 10% mortgage.
Whilst at face value this may seem like overkill, the basis for this change is certainly a positive one. In reality, how bad can it be to make sure that you can actually afford to buy a property?
And now the fun really begins, as clients relay tales of three-hour long mortgage appointments in branch, including some very in-depth questions around expenditure. One client was asked whether, after moving, they would continue to spend £21 per month to have their milk delivered.
While some of these more unusual questions may die down in the coming months, mortgage borrowers do now have to accept that affordability is at the forefront of any mortgage application, making the potential for declined application a bigger reality.
Lenders also have to consider your financial position in the coming years, by ‘stress testing’ your mortgage against a potential rate rise in future. In some cases at levels as high as 7%.
As a Contractor, there is already a worry that lenders do not assess your income correctly, and with these new processes that fear becomes even greater, meaning that it could become more difficult to borrow what you need.
“Now more than ever there is a far greater benefit in using a Contractor specialist mortgage broker” says Taj Kang, Business Development Director at Contractor Mortgages Made Easy.
“Not only to ensure that your income is assessed in the fullest possible way, but also to navigate you through a sea of confusion following the recent flood of regulatory changes.”
“Not forgetting of course that by pursuing funding options directly with a lender, there is a very real risk that even a specialist broker may not be able to help following a declined application.”
“Don’t risk putting your home in jeopardy. Contact a Contractor specialist broker as soon as you can. Let them discuss matters with lenders for you, rather than having to sit through laborious conversations about how much you spend on dinner parties.”