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Loans & Credit

New mortgage rules: Two-hour quiz for borrowers as loan regulations come in

If you're looking for a mortgage, be prepared for a lengthy interrogation about your finances, says Simon Read

A clampdown on mortgage lenders means that anyone hoping to borrow from today faces a major grilling about their finances.

Lenders are being forced by the City watchdog to ensure that any potential borrowers can afford to repay their home loan now and could also meet repayments if interest rates should rise.

The so-called stress test – which forms a key part of the Financial Conduct Authority's new mortgage regulations – will mean ensuring that borrowers can cope easily with a rise of 1 per cent in rates.

The rules are long overdue and should ensure no return to the disastrous mortgage boom of the last decade when many lenders ignored affordability rules and instead relied on soaring property prices bailing struggling borrowers out.

The regulator wants to avoid a repeat of that toxic-loan period which led to the collapse of former major lenders such as Northern Rock and Bradford & Bingley.

But those applying for a loan now could face hours of questioning and will be expected to supply detailed evidence of their income and, crucially, their outgoings.

But that doesn't necessarily mean it will be tougher to get a loan, as lenders will still want to do business.

Paul Broadhead of the Building Societies Association said: "It is understandable that people are concerned about the changes. However, it is vital that the new regime does not dent consumer confidence.

"The mortgage market review was introduced to ensure a common-sense approach to mortgage lending by all lenders and that people are not borrowing more than they can afford to pay.

"A number of building societies implemented the process early and have been lending this way, without problems, for a number of weeks. In fact, the common-sense approach has been taken for years."

However, to increase the chance of being granted a loan, experts suggest cutting back on spending before you apply.

Adrian Anderson, director of mortgage broker Anderson Harris, advised: "Cut back for three months before applying for a mortgage: pay off debts and simply spend less.

"In the past, borrowers reined back their spending once they had a mortgage and had to pay it each month; now you should act as though you already have that commitment in place and reduce your spending accordingly."