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Mortgage Market Review rules set to take effect


Mortgage applicants will have to answer more stringent questions about their lifestyle when new mortgage rules come into effect on Saturday.

The new rules will mean that mortgage applicants will have to answer questions about their expenditures as well as their income – this will include everything from energy bills to monthly food costs and even leisure activities such as going to the cinema or eating out.

However, some brokers are concerned the new rules could make the mortgage application process overly complicated, causing delays and even rejections of applications.

You can read our article Are you prepared for the mortgage market review for more information about the rule changes and what you will need to do to boost your chances of successfully applying for a mortgage.

Additional Questions to ‘protect’ consumers

The new rules are being implemented by financial watchdog, The Financial Conduct Authority (FCA) and are hoped to protect consumers from the type of irresponsible lending that led to the financial crisis.

FCA Chief Executive, Martin Wheatley summarised the purpose of the new rules by stating: “The core principle is a very stable one – lend to people what they can afford to repay”.

He then continued by saying: "We've come out of a period, particularly in 2008-09, when there was no attempt to verify people's ability to pay, and we've ended up with lots of payment problems, lots of people in mortgages that are problematic for them, and if we had a different interest rate environment we'd see a lot of foreclosures."

Applications could be delayed or rejected

There are some fears that some customers could find their mortgage applications will now be rejected if their finances cannot pass a ‘stress test’.

The ‘stress test’ will examine an applicant’s capability to carry on repaying their mortgage if interest rates are increased over a five-year period, causing some concerns that many could find their applications being rejected.

Peter Hill, Chief Executive of the Leeds Building Society was not overly concerned that many people would be negatively affected as only 2.5% of borrowers are likely to face problems based on the current market. He added: “In a more buoyant market, possibly a market that's starting to overheat, that could be as much as 11%, so I think the impact's going to be much smaller than some people fear."

Additionally, Paul Broadband, Head of Mortgage Policy at the Building Societies Association (BSA) rejected fears that the rules will cause many problems, he said: “It is highly unlikely that a single purchase or category of expenditure will make the difference between yes or no decisions”.

Need Advice?

Are you planning to apply for a mortgage but are worried about the new rules? Contact one of our financial advisers by asking a question online or calling 0800 092 1245

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