New mortgage rules brought in this Spring by the FCA (Financial Conduct Authority), in order to reduce the possibility of a house price crisis as experienced in 2007, have already had a noticeable impact on property sales in all areas over recent weeks and months as mortgage AIP’s (Agreements in Principle) are revoked entirely or further conditions imposed following scrutiny of a prospective purchaser’s monthly outgoings.
Potential buyers will now be surprised to find that affordability tests include considerably more questioning from lenders as to their income and expenditure right down to the smallest detail rather than simply applying a multiplier of joint income as has been the case over many years. Stress testing of new borrowers may result in a much higher number of applications being turned down than has traditionally happened. The self-employed will also have to provide evidence of trading accounts over a number of years allied to a good credit rating. This will involve much longer interviews than has previously been the case depending on the applicant’s circumstances.
Perhaps of greater significance will be that existing borrowers may assume that they can “port” their mortgage deal when they move home or wish to remortgage – only to find that the new stress tests prevent them from doing so. This could result in borrowers becoming trapped in a mortgage commitment with a higher interest rate and unable to take up the opportunity of better deals.
Lenders advise that there are plenty of funds available for home purchase but that potential purchasers should allow more time to secure suitable funding and ideally should discuss their needs with their current lender or a mortgage advisor well in advance of making an offer for their dream property. This will prevent the considerable disappointment currently being experienced by many prospective purchasers who have agreed to buy a property and run up considerable professional fees only to be informed that their mortgage application has been turned down. Selling agents are also undertaking more detailed “proof of funds” checks with buyers before a sale is agreed in order to reduce the chances of a sale falling through when a buyer is willing but not able to proceed to contract.
Sheldon Bosley work closely with independent financial advisors who will be in a position to provide both clients and prospective purchasers with further advice regarding the effects of the new rules on their future mortgage requirements and further information regarding the implications can be obtained from Gabrielle Mallard MNAEA at the Stratford Office (01789 292310) or Philip Jones FNAEA at Shipston on Stour (01608 661666).