If you’re mortgage hunting, how will you choose which bank or building society to go with? The one that has the lowest-rate mortgage? A lender that doesn’t charge high upfront fees? Or one that can process your application quickly?
In the good old days (or irresponsible old days, depending on your view) before the credit crunch, some mortgage lenders could approve mortgages in no time at all.
But if you apply for a mortgage today, it could be a slow process; and there are several reasons why. Mortgage lenders are asking more questions and checking more documents than they used to, and some got rid of staff when demand for mortgages was low. On top of that, they’re also preparing for the introduction of tighter regulations in April following a lengthy review of mortgage lending decisions by the regulator, which goes by the acronym of MMR (mortgage market review). One lender, Kensington Mortgages, plans to ask some applicants to break down their spending in almost forensic detail and itemise spending on grooming, dry cleaning and parking.
Tighter rules, more questions
These tighter MMR rules mean changes to a lender’s IT systems, more staff training or both, says James Cotton, mortgage specialist with London and Country mortgage brokers. And some lenders are taking longer to make these changes than others: “Mortgage lenders are in different states of readiness for the introduction of MMR. They’re under a bit of time pressure to get this done at a time when the mortgage market is very busy.”
While the spring is normally a busy time, last year’s cold weather delayed the start of the house hunting season and some lenders have been surprised by the surge in demand. Figures from the Council of Mortgage Lenders show that gross mortgage lending (all new lending, including remortgaging) for January was up by 33 per cent on a year earlier. Ray Boulger of mortgage brokers John Charcol says mortgage application times have extended as a result.
Not only are applications taking longer but some lenders are playing a game of cat and mouse to make sure they’re not overwhelmed by demand. A market-leading mortgage deal can be too good at attracting business, especially if competitors raise their rates on comparable deals. It means that if you apply to a mortgage lender that’s underestimated demand for its best-buy deal, your application could take even longer to process.
Prepare in advance
If you’re going to apply for a mortgage, and especially if you’re buying where time is of the essence, ask your broker or mortgage lender for a list of documents you’ll be expected to supply in advance. Do this several weeks ahead of your application. Mortgage lenders can take several days to check your documentation (five days isn’t unusual) and they may not look at your application until you’ve submitted all the documents.
What you’ll need
You will need to supply proof of identity, the last three months’ bank statements (make sure online statements clearly show the bank/ building society, your account number and name), the last three months’ wage slips (12 if you’re paid weekly) or a form called SA302 if you’re self-employed. “Most lenders prefer the SA302 to accounts because they only have to look at one figure,” says broker Ray Boulger. You can get this form from HM Revenue and Customs, but it can take a week or two to arrive.
If you’ve got married or changed your name in the last three years, you may have to provide a copy of your marriage certificate or evidence of your legal name change. Lastly, although this isn’t a document that the lender will ask you to provide, make sure you’re on the electoral register as they’ll check it to see that you are who you say you are.
Get a list of documents you’ll need before you think of applying for a mortgage. If you’re house buying rather than remortgaging, ask your broker (if you’re using one) how long applications are taking before you apply to a particular lender. It could save a lot of stress further down the line.