Property and mortgages

Confusion reigns over mortgage-lending rules

Hundreds of thousands of potential buyers remain confused about the “new” rules on mortgage affordability – even though the changes were brought in nearly a year and a half ago.

The stricter lending code means that mortgage providers must take extra precautions to make sure that potential borrowers can afford their repayments – not just at the moment but also over the longer term.

Under the Financial Conduct Authority’s changes, customers should have their spending habits analysed as well as their income, and they will need to show a track record of being able to meet their obligations.

But about 70% of people claim not to be aware that their spending will be looked at – and these people risk finding it harder to secure a mortgage.

Meanwhile, only a quarter of aspiring homebuyers are aware that the rules also test their ability to afford repayments if interest rates rise, and even fewer apparently know that their ability to withstand changes to their personal circumstances will also come under scrutiny.

“More than a year after the new mortgage rules were introduced, potential buyers are still in a state of confusion about what they mean in reality,” says Gareth Shilton, of Ocean Finance, which carried out the research.

“Even more worrying is that a large chunk of people who are gearing up to apply for a home loan are not even aware that the mortgage rules have changed.

“As an industry, we need to do more to educate buyers and to guide them through a process which many people are finding understandably daunting.

“For anyone who plans to apply for a mortgage, it’s key that their finances are in order, including checking their credit file and gathering all their paperwork early to show as evidence.

“They would also be wise to cut back on non-essential spending such as takeaways and subscriptions, and to ensure that bills are paid on time so they demonstrate that they can consistently live within their means and stick to a budget.”