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Are you prepared for the Mortgage Market Review?


As of 26th April, the Mortgage Market Review (MMR) will come into effect. This will affect everybody hoping to apply for a mortgage, including those re-mortgaging their homes.

This is because applying for a mortgage will become a more rigorous process. Mortgage lenders will soon be obliged to check each mortgage applicant’s finances and ability, in order to decide how much a mortgage applicant can afford in the long run.

To help you with the challenges the MMR has created, we’ve answered a few frequently asked questions below:

What do the new rules actually mean and when do they start?

As of 26th April anybody looking to take out a mortgage will have their finances more rigorously examined. This will mean that a potential homeowner will need to provide everything from evidence of income to all of your expenditure (including everything from council tax to food bills and even your broadband!).

Why have the new rules been introduced?

The new rules are mainly to protect you as a potential homeowner, so that you don’t get yourself into a situation where you cannot afford your mortgage repayments. However, this is also to encourage responsible lending from banks in order to avoid a repeat of the 2007 financial crisis.

Lenders will now need proof that potential home owners will be able to both meet the initial mortgage repayment, but that their spending habits will not hamper their ability to pay their mortgage repayments in the long term – even if circumstances change.

This will also take into consideration the likelihood of interest rates increasing and affecting the cost of each mortgage repayment.

What exactly will I need to provide?

You will need to provide proof that you can afford to pay the mortgage you are applying for in the long term, even if circumstances change. An example of a changing circumstance is if interest rates were to increase by 3%, in this situation the average mortgage repayment would increase by £265+ a month.

This means that you will need to provide proof of income:

1. Pay slips (for at least three months)
2. Banks Statements
3. Benefit Payments
4. Pension/retirement income
5. Investment income (such as rent from property)
6. Savings

Additionally, you will also need to provide proof that you are living within your means by providing information about your expenditure. The information lenders might look for you to provide includes:

1. Council Tax
2. Utility bills
3. Unsecured loans and credit cards
4. Travel costs (work and school)
5. Child maintenance payments
6. Childcare costs
7. Lending secured on your current property
8. Buildings and content insurance
9. Rent
10. Housekeeping
11. Food bills
12. TV and broadband
13. Telephone and mobile phone contracts
14. Entertainment

What should I do?

If you are planning on applying for a mortgage, it might be a good idea to start compiling as much information together as possible on your income and spending.

Additionally, you might want to think about tidying up your finances and making some decisions on whether or not you think you’ll need to cut back a little in order to improve your chances of getting a mortgage.

Before you do apply for a mortgage though, it is always a good idea to get expert financial advice in order to help you make any decisions you’re not sure about.

Do you need financial advice?

If you are planning on applying for a mortgage in the near future, our team of expert financial advisers will be happy to help you make these decisions.

To get help, simply ask a question in our online question box, or call us on 0800 092 1245.

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