Five Questions On: Mortgage affordability


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The Independent Online

Is it getting easier to get a loan?

No. In fact, since the introduction of new affordability rules last year it's got much harder.

How much harder?

Research published this week by Experian suggested that 45 per cent of people planning to buy a property since the new rules came in have been rejected. However, the problem isn't just hitting ill-prepared first-time buyers; people hoping to remortgage to a new deal are also facing rejection.

What's the problem?

Banks and building societies have been forced to be much more careful about to whom they hand out loans. If things go wrong, lenders can be held to account for irresponsible lending. It means potential borrowers – even those who already have a mortgage – have to do a lot more to prove that they are a safe prospect.

What sort of things do potential borrowers need to do?

They need to prove that they are sensible with money and will be diligent about meeting monthly mortgage payments and, crucially, they can afford to repay now and will be able to do so in the future when rates rise. That's why existing borrowers are failing to get a new deal, too, as their finances may not appear solid enough to pass so-called future affordability stress tests.

How can people improve their chances of getting a mortgage?

With lenders examining people's bank statements now, it's important to improve basic spending and budgeting at least three months before applying for a loan. Cutting back on unnecessary luxuries – such as expensive coffees – will improve your financial position as well as showing a serious commitment to living within your means. Not needing to go into the red every month will also help, as will using a credit card sensibly, as it demonstrates a responsible attitude.

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