Money Insider: Extra mortgage checks, what's all the fuss?
Saturday 03 May 2014
New mortgage rules came into force last week, and as a result lenders are now required to undertake a more thorough review of an applicants income and expenditure.
While it may make it harder to get a mortgage in some of the more borderline cases where disposable income is tight, for most people it just means the mortgage interview will take a bit longer than it does now as the lender has more questions it needs to ask.
Sadly some people in the press have taken their usual anti-bank stance and blown the whole matter out of proportion.
The Mortgage Market Review (MMR) was designed to ensure that potential borrowers have the capability to afford their monthly home loan repayments now and also when interest rates rise in the future.
It's nothing more than common sense and something that should have been put in place years ago.
Yes, a few more people may be turned down for a mortgage, but if that prevents them going through the major financial stress and heartache of having their home repossessed a couple of years down the line, surely that's a good thing? Well, it doesn't seem that way, according to some of the recent sensationalist media bleating.
How dare those big nasty banks ask us to spend three hours to go through a mortgage application? After all, we're only asking to borrow a couple of hundred thou over 25 years. Whatever next?
And why should we have to give the lender a full picture of our finances – surely we can just scribble a few numbers down on the back of a fag packet? They should be grateful they have the opportunity to lend to us at all.
Seriously though, the claims of this "outrageous behaviour" is coming from the keyboards of the same people who only a few years ago gave the banks a verbal kicking for reckless lending practices when the financial crisis began to unfold.
It's got to be a better way for mortgage lending. If you dig deep enough at the application stage and get a full and accurate picture of a customer's financial position, it should lead to fewer instances of defaults and bad debts.
It's the right thing to do to decline an application if it's clear affordability will be an issue if interest rates increase by as little as one percentage point, particularly as they are historically very low at the moment and that higher borrowing costs are a distinct possibility in the next 18 months or so.
Yes, I agree it may seem a bit intrusive when a prospective lender asks what you spend on childcare, gambling and nights out, but for some people these things can involve a few hundred pounds a month, so they can have a significant bearing on your ability to service a six-figure mortgage. If the MMR had been in place a decade ago, we wouldn't have the current situation where some people are paying only the interest on their mortgage because that's the only way they could manage to get on the housing ladder.
It might have seemed like a good idea at the time, but there are now thousands of people in a sad predicament where the only way they will clear their debt is if they benefit from an inheritance, sell their home or pass away.
I know the banks have lost the trust of many people due to past mis-selling issues, poor customer service, the closure of branches and excessive executive pay, but I think the MMR is a sensible move for both borrower and lender – and that the banks should be cut some slack on this occasion.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
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