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New rules to make home buying harder

From the end of April, lenders will subject mortgage applications to greater scrutiny – and this could affect your chances of buying a home.

New rules due at the end of this month will make it tougher to get a mortgage.

The regulations come into effect on 26 April as part of the government-backed Mortgage Market Review (MMR).

They will put pressure on lenders to ensure that their customers can genuinely afford to take out a home loan.

More evidence needed

The net result is likely to be that borrowers will have to provide more evidence of their income and expenditure.

And a greater number of applicants are expected to be turned down.

David Hollingworth at mortgage broker London & Country says: "MMR puts rules in place to ensure that lenders concentrate on showing that a mortgage will be affordable for borrowers not only now but also in the future.

"To do that borrowers will clearly need to prove their income and how it is made up.

'Paint a clearer picture'

"They will also be asked for more detail about their monthly expenditure so as to paint a clearer picture of their disposable income to establish affordability."

Hollingworth says that while banks and building societies have been examining applicants’ outgoings for a while now, the new regime is expected to be more intrusive.

He explains: "Lenders have been using affordability for some time now.

"But MMR will see more detail around costs such as food, utilities, council tax but also extending to important areas like childcare and pension contributions."

Future affordability

The Financial Conduct Authority, the official body behind the MMR, is not just concerned about whether customers can meet their mortgage repayments today.

Lenders will be expected to "stress test" applicants, by looking at whether they would be able to pay off their loan if interest rates were to rise sharply at some point in the future.

Mark Harris at broker SPF Private Clients says: "If the lender decides you can’t meet those higher repayments, it will reject your application.

"However, we don’t envisage an influx of declines as many lenders already stress test applications at a higher rate."

A new approach

So how should would-be borrowers change their approach to mortgage applications?

It is important to be ready to demonstrate how much you earn and spend, Hollingworth says.

But it may not be wise to cut expenditure to the bone in the months leading up to an application in the hope of getting a bigger loan, he adds.

"It's likely that many borrowers preparing to buy a property will already have reined in unnecessary spending," Hollingworth says.

Remortgaging shock

"But I'm not sure it makes sense to try and create an artificial picture of regular outgoings in an attempt to borrow more."

Borrowers attempting to remortgage their homes could be in for a particular shock, says Adrian Anderson at Anderson Harris.

"Banks will ask for twice as much information as in the past," he says. "Before you may have declared your outgoings and the bank took a cursory look at your bank statements.

"Post-MMR they will go through them in great detail, paying particular attention to regular outgoings they may not have considered before.

"This may include anything from pet or dental insurance to gambling or direct debits to wine companies."

Hollingworth says: "These changes will largely augment what's already there rather than represent a total overhaul.

"It won't make getting a mortgage any easier but we will have to see if there are any unintended consequences as a result of the implementation."

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Chris Torney

Chris Torney

Chris is the former personal finance editor at the Daily Express. He's been a journalist for more than 10 years and contributes to a wide range of finance and business titles.Read more from Chris