With just a few days until the Mortgage Market Review is put in place, Henry Knight, Managing Director of broker Springtide Capital explains the three top things consumers need to know about the new regulation:
1. Affordability is the key
After Saturday, lenders will no longer be using income multiples to determine how much you will be able to borrow. Instead, the new rules stipulate that they must look more closely at your level of ‘affordability’ instead. Put simply, lenders will be doing a much more thorough investigation of your earnings and outgoings, looking into how you spend your money on a monthly basis in much more detail. Therefore, take into account that this will not only drastically increase the length of time it takes to get a mortgage, but also that each and every one of your monthly expenditures may affect your application- even one off luxury purchases such as holidays or eating out at the weekend.
2. Interest only borrowers may be hit hardest
Lender criteria varies considerably from one lender to the next and this also applies to interest only mortgages. However, under the new rules, all interest only borrowers will need to demonstrate alternative methods of repayment of their loan at the end of the term in order to be approved. This may involve demonstrating additional income from a buy to let property, investment or pension plan.
3. Get advice early on to avoid missing out
Getting the keys to your dream property will require planning. Timescales have been lengthened as a result of MMR and you need to be speaking with a qualified adviser early on in the process. Our team are already fully qualified to advise clients and do not need any further training, therefore the impact on those borrowers securing a mortgage with professional help will be minimal. However, the same cannot be said for those choosing to apply direct with a lender, as these borrowers are likely to find themselves the victims of delays after the new regulation is introduced over the weekend.