How will mortgage changes affect the consumer?

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The new Mortgage Market review rules will bring about a number of changes affecting how easily borrowers can access a mortgage.

Borrowers can also expect to be asked more probing questions about how much you earn and what you spend your money on, with lenders scrutinising everything from the cost of your gym membership to how much you invest in TV package deals.  

One of the main effects will be a move away from mortgages being sold on an “execution-only” basis, with the overwhelming majority of mortgage sales being advised. Indeed, some lenders and most brokers will only offer advised sales after the new rules were introduced on 26 April.

In terms of the actual customer experience:

  • The new rules are very prescriptive about giving advice and the process is likely to take longer than before. Some estimates of the length of the process have been published but these vary from lender to lender.
  • It has been estimated that an advised sale could take up to two hours – perhaps longer – to complete. Even if you are making a change to an existing mortgage, you will be affected by the new rules and may find that the process takes longer than before.
  • It is possible, therefore, that some lenders will choose to split the sales process into two separate interview sessions.

Mortgage interviews will be longer because firms will need to ask more questions to determine what mortgage product is suitable for you, taking into account your individual needs and circumstances. Questions that will be covered as part of the advice process include:

  • What length of mortgage term is suitable for you?
  • Do you need the stability of fixed monthly interest payments, bearing in mind the potential impact on your finances of future changes in variable rates?
  • Is a mortgage offering lower monthly repayments at the outset an appropriate option?
  • Is it likely that you will make early repayments?
  • Should you have a repayment mortgage, an interest-only loan, or a combination of the two?
  • Is it appropriate for you to pay any fees or charges upfront, instead of adding them on to the mortgage?
  • What other loan features might suit your circumstances?
  • Is the mortgage suitable, based on the information you provide and your credit history?

You will need to provide more details about your income and expenditure. Be prepared!

One of the cornerstones of the new rules is that there must be a careful and detailed assessment of the affordability of the mortgage for you – of initial payments and future ones as well – in an environment in which interest rates may be higher and allowing for changes in your circumstances that can be reasonably foreseen at the time you take out your mortgage.

The requirement to lend responsibly, and assess affordability, will mean that lenders must take into account your income, committed expenditure and other basic essential expenditure and costs reflecting your quality of living.

You can help yourself through this process by anticipating some of the questions the lender will ask and having to hand appropriate supporting evidence. Documents that may be needed to substantiate income from employment could include:

  • payslips, from each job if you have more than one job;
  • evidence of any overtime or bonus payments if these are not captured by payslips;
  • bank statements, which will help confirm that income is paid regularly; and
  • statements from your employer verifying any income that is not contractually guaranteed or which is irregular, including, for example, maternity pay.

If you are self-employed, you may need:

  • business plans and future projections of income;
  • tax returns and other details of tax paid;
  • business accounts, preferably independently prepared or verified; and
  • statements or other verification of income from an accountant or other professional adviser.

Finally, if you want the lender to take into account other forms of income, you may need things like:

  • pension statements and projections;
  • annuity records; and
  • statements of income from investments or rental properties.

You should also expect the lender to ask questions about any potential changes to your future income and expenditure – for example, forthcoming retirement or anticipated redundancy. As with other requests from the lender for information as part of the application process, it is important for you to answer as fully and openly as possible.