Affordability Checks

Anyone in the “mortgage know” will be aware of the new affordability checks which came into effect at the end of April this year.

The changes were brought into effect following the “Mortgage Market Review" (MMR), which was ordered by the government to avoid a repeat of the 2008 housing recession.

Lenders have stated that the changes have only put a "gentle dampener" on the UK mortgage market during their first months of operation, rather than bringing about any abrupt changes.

My opinion is simply that lenders now ask more questions, do more checks and take longer to get to the same result. I think the banks had already taken a good hard look at themselves in light of the review, and slowly tweaked their criteria over the past couple of years in order to avoid irresponsible lending.

Contrary to early industry beliefs, Lenders are reporting a steady rise in first-time buyers despite the changes. Somehow the message has filtered through to new borrowers that inside leg measurements and DNA tests are now required in order to get a mortgage and you need good credit, a decent deposit and an excellent work history. Our experience here is that most are turning up with a full set.

Nationally, First Time Buyers borrowed an average of £122,000, in the first three months of 2014, they typically borrowed 3.46 times their income. Mortgage Required’s FTBs averaged £178,000 owing to the South East’s house prices. Interestingly, our FTBs still only borrowed 3.55 times their income, which clearly shows incomes are also inflated in this area!

Another feature of MMR is the stress test, where lenders are required to work out if new borrowers would still be able to afford their mortgages if the interest rate rose considerably.

I think the Bank of England have given us enough warning that the Bank rate may rise in “baby steps," perhaps as early as the latter part of this year, so any rise will have been taken into account by lenders following the new rules.

So, in summary: mortgage availability high? (tick), application process more thorough? (tick), Lots of FTBs buyers? (tick), House prices increasing? (tick), Good time to buy? Of course!

For more information or to speak to a mortgage adviser contact us or call on 01628 507477.