New mortgage rules: How to get a loan – a guide for first-time buyers - Mortgages - Money - The Independent

 

New mortgage rules: How to get a loan – a guide for first-time buyers

Personal Finance Editor

Buying a house just got even more difficult.

From Saturday, anyone hoping to get a mortgage faces a inquisition of Spanish proportions following a clampdown on lenders by the City watchdog.

These days, getting a loan is all about affordability. Lenders have to show they’ve been responsible and not handed out loans to those who may not be able to afford them.

And that doesn’t just mean now, but in the future and in the event of an interest rate rise, when monthly mortgage commitments would go up.

They now have to do a so-called stress test - which forms a key part of the Financial Conduct Authority's new mortgage regulations - on your finances to ensure that borrowers can cope easily with a rise of, say, 1 per cent in interest rates.

That may seem a small increase, but could actually mean a 25 per cent hike in your monthly mortgage repayments. So if you had to repay £500 a month, you’d need to find an extra £125.

Can first-time buyers afford that? That’s the question that lenders will ask and you’ll need to demonstrate. How can you show affordability? Follow our five tips that will help you get a mortgage:

1. Check your spending
Before letting a lender see your finances, examine them closely yourself. What do your current account or credit card statements tell you? Do you have a lot of direct debits? Lenders will want to know what your future spending will look like and the first indication of that is regular expenses.

2. Cut your regular expenses back
Are there any of regular expenses you can cut back on? Regular ongoing commitments such as pension contributions, childcare costs or school fees could hit your chance of being approved for a loan but these are things you probably can’t reduce. Essential bills, such as heating and lighting, will also remain, but are you still using that gym you’re paying for? Could you cut your monthly mobile or TV costs?

3. Moderate your lifestyle
Are you spending a lot of money in pubs, clubs or restaurants? This is an area you could cut back on. You won’t need to lead a totally frugal lifestyle but it’s worth planning to moderate your nights out a few months before you plan to apply for a mortgage. It’s also worth bearing in mind that lenders may also look askew at regular payments to wine companies or bookmakers, considering them evidence of an expensive lifestyle.

4. Know what you can afford
Do you know how much a mortgage will cost you? There are plenty of online mortgage calculators that can show you at-a-glance how much monthly repayments will be on different interest rates. You’ll be able to see how much they will cost you now and how much they will increase if rates climbed by 1 or 2 per cent. With the latter figures do your own stress tests on your finances to see whether it looks like you really could afford to continue to meet your monthly repayments when rates go up. If it looks a close call to you, it will certainly look dodgy to a lender. Knowing that will give you a chance to make the changes you need to improve your affordability.

5. Check your credit report
Finally make sure your credit report is up to date. Contact Experian, Equifax and Callcredit  to ensure the information they hold on you is accurate and up-to-date and get them to correct any wrong data.

News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
PROMOTED VIDEO
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
Finacial products from our partners

 

Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week