2013 was an undeniably hot year for the British property market, with house prices and purchases rising to their highest levels in almost half a decade during the calendar year.
With the Bank of England set to refocus financing from their Funding for Lending scheme away from the property market this year, it is more than likely that acquiring a mortgage will become more difficult this year than the last.
Factor in that new rules and checks are set to be introduced for mortgage applicants this year and it is undoubted prospective property owners will be faced with a harder time obtaining their house of their dreams this year. It can be argued that with the first phase of the restoration of the housing market complete, the next step should be ensuring that it remains stable and not overheating. And though these checks may seem unwelcome, they are a necessary step to ensuring that no cries of a ‘housing bubble’ manifest in reality.
So what are these changes and what can you expect from the mortgage market over 2014?
Early last year, the Financial Conduct Authority announced the release of their Mortgage Market Review in April this year which will change the application procedure within the property market. These new rules are hoped to improve consumer protection with their mortgages whilst simultaneously helping suppliers find the most reliable borrowers.
As such, the thoroughness and length of affordability checks will be greater this year, and as such will make the entire mortgage application procedure far longer than it was in 2013. It will likely to reduce the number of high loan-to-value mortgages currently being handed out as suppliers do not enjoy the bank funding they received in 2013 to boost their finances.
Expect to have to hand in clear details of all your monthly outgoings as well as the precise amount you take home each month to pay for these. Bank statements, monthly bills, and other official expenditure documentation will likely now have to be given to your mortgage provider so that they can make an accurate estimation of the maximum amount you can borrow whilst maintaining monthly payments. This will see a change from the current income multiple system to determine the amount a borrower can acquire for their mortgage and marks a significant move away from old fashioned mortgage lending.
Borrowers should be prepared to answer questions about their monthly income and outgoings,” says Paul Broadhead, head of mortgage policy at the Building Societies Association.
“This may include the costs of travelling to work, childcare, other household bills including energy costs, and details of any loans and credit cards that will continue after the mortgage is taken out. The new rules may mean some borrowers find they can borrow less than they might have expected in the past.”
So in short, expect less lenience with your mortgage application, more paperwork, and small sized loans this year compared to the last.
As well as affordability checks to contend with, prospective property owners should brace themselves for new stress checks as well which will further the application procedure this year.
It is thought that just over half of borrowers will be asked to have a meeting with a mortgage adviser who will then evaluate details of their finances to see if they will be able to afford their monthly repayments when interest rates finally rise. This means that you may be able to pass the current affordability test, but may still be rejected if your advisor finds that you will be unable to keep up with payments in the future. The assigned future interest rate for checks is currently uncertain, but it will likely be at around 1-2%.
David Hollingworth of London and Country mortgages said: “We are already starting to see customers using branches going through two or more interviews with branch staff, which is time-consuming for both the branch and, more importantly, the customer. It can be more of a drawn-out process with papers flying backwards and forwards.”
All the early signs this year have pointed towards more expensive mortgages this year for customers, with rates already on the rise from the particularly low offerings last year. Many mortgage brokers have argued that whilst ultimately the new rules will ensure a better property market, that many providers will be slowly to implement them due to the lack of finalisation with the new policy.
Many have also cited that borrowers should brace themselves for higher booking fees this year as well as other upfront charges due to the fact that mortgage providers will be keen to ensure a commitment from them and some form of financial reward.
So expect to be offered a mortgage with a higher rate if you apply this year, and expect to pay more during the application procedure as well. The reality of this during 2014 may mean that certain people are priced out of their areas, though this may be a necessary consequence to ensure people don’t simply buy a house on impulse without considering the larger costs in the future.
What you can do
So a forecast of less attainable, more expensive mortgages with a longer application procedure has been made by market leaders and though the merits of these are evident, it is still nevertheless a relatively pessimistic picture at the moment for prospective borrowers. However, there are a number of things you can do to counteract this and give yourself the best possible chance of acquiring the house you want.
The best things to do are involved with your credit file, as this will play a huge role in your success when applying for your mortgage. Ensure that you pay all of your current credit payments early and make sure you have no outstanding liabilities that are in default when making your application.
Checking your credit report regularly will ensure you achieve this, and will make sure your file is in the best possible stead when you finally decide to lobby a broker. In the months leading up to your application, ensure you minimise your credit applications as you want to exude the image of someone who is financially stable and does not rely on credit to pay for things.
Avoiding payday loans is also pivotal as a number of firms have come out saying that this diminishes your chances of obtaining a secured loan exponentially.
Ultimately, the changes to the mortgage market are set to change the landscape of mortgage borrowing immensely, with longer and more stringent checks than ever before. However, it can be argued that this is a necessary step to ensuring a greater level of responsible lending and as such, it is up to you to adapt your financial image to fit the bill.
This will ensure you acquire a mortgage that doesn’t put you at risk of falling into debt whilst also maximising your chance of attaining the house of your dreams.