FCA Mortgage Market Review – what this will mean for clients wanting a mortgage from 26th April 2014 onwards
- Author: David Crosby
- Posted on: 23rd April 2014
- Posted in: Blog
The Financial Conduct Authority (FCA) will be bringing into force new regulations regarding mortgages from 26th April 2014. The aim of these regulations is to tighten up mortgage affordability checks and as a consequence (perhaps to a degree some unintended) these will take away a significant degree of flexibility for Lenders when assessing a customer’s eligibility for a mortgage. No one wishes to go back to the time when mortgages were being given to literally anyone who asked for one and irrespective of their actual ability to repay that loan, but equally with property buying and selling being one of the most important drivers of economic confidence and financial recovery across the Country, no one should wish to see the market so heavily restricted that it grinds to a complete halt. For everyone working in the property industry, be that solicitors, estate agents, surveyors and mortgage brokers, let us all hope that common sense still has an important role to play where our clients finances are concerned and that it will not just become a case of the computer says “yes or no” with the result that some people are arbitrarily shut out from the property ladder when clearly they wish to be on it and just as importantly, where they can clearly finance being on it comfortably under any ‘sensible’ assessment.
In terms of implementation some mortgage Lenders have been quietly phasing in the changes on affordability for the past 12 months. From the 26th April it is safe to assume that all customers will become subject to the new regulations and on a practical level that means they will have to provide far more detailed evidence of both their income and their day-to-day expenditure. To a degree the advice we would give to customers is to be very careful as to the amount of your monthly expenditure and also the nature and type of your expenditure if you are aiming to apply for mortgage finance at the present time or in the near future. Lenders will almost always demand to see a minimum of 3 months of bank statements (perhaps more, 6 months is not uncommon) and they will now scrutinise these very carefully as part of the affordability assessment. Regular monthly expenditure that you may understandably consider to be ‘irrelevant’, such as dental care plan fees, dog walking fees, membership fees for a gym, golf or tennis club etc, will now almost certainly be taken into consideration. You could on a routine application, and almost certainly will be on a borderline application, also be asked very detailed questions about your planned spending on future holidays, nights out, season tickets, childcare and life insurance / pension contributions as if these are seen to be regular and not one-off expenses, that can affect your ability in the lenders eyes to afford your mortgage repayments. As we hope is clear from this, it is absolutely essential that evidence of your income and expenditure is presented in such a way as to best ensure that a mortgage lender deems you a safe bet for them and gets granted on first application. It must also be stressed that a lender may at any time decide to reassess your financial position after granting the mortgage and if your position has materially changed (for example you have taken on new direct debits, finance agreements for furniture etc after getting the original mortgage offer), this may easily lead to a review of the mortgage being undertaken. Hopefully common sense will apply and no mortgage will be withdrawn once you are committed to a purchase but the risk is a real one and the advice must be to do nothing whatsoever to change your financial position from the grant of your mortgage to the completion of your sale/purchase that could give your lender any reason or grounds to review and thereafter withdraw or change the mortgage to your financial detriment.
So what is likely impact these changes will have on the property market in Sussex? Our assessment is that whilst the property market in the County and in particular the city of Brighton & Hove remains very buoyant, the implementation of these far stricter and more inflexible rules will at the very least bring greater delay into the buying and selling process and with any delay comes uncertainty. We already have a strong seller’s market at the moment and that automatically places a premium on a buyer to (a) act quickly and decisively and (b) to ensure they have the funding in place to complete in a timely manner and avoid the risk of gazumping by another buyer who is better prepared than they are. Mortgage lenders will inevitably take longer to assess applications as they get to grips with the new regulations and as with all changes there will be inevitable flaws in their systems and processes that result in extra information and clarification being sought if it doesn’t tick a box instantly. Hopefully banks will go that extra mile to lessen any delays and ensure their staff are fully trained to operate the new regulations efficiently. That said, in our experience applicants will undoubtedly be in a far better position if they have an experienced and knowledgeable independent mortgage broker working for them from the start as that person will know how to best to present an application to meet the lenders criteria and what supporting financial information will also be needed and disclosed. It is also clear that a poorly prepared application, or one where no advance consideration has been given to presenting and explaining an applicant’s income and expenditure history in the best possible light, is likely to lead to a refusal to lend money and so the importance of getting good advice from all of your team of advisors cannot be stressed enough.
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