Mortgage application changes 14-04-14

[Ilikebeaver]

The new mortgage application changes are coming in tomorrow.

This is something that has completely slipped me by and I have only found out now I am selling/buying a new house and trying to get a mortgage agreed in principle.

Long story short, we can't get a mortgage agreed in principle until this new FSA regulation is in place as the whole application process changes.

I have been looking into it and it could result in a stricter lending criteria as it will no longer be based on a earnings multiple but actual affordability.

My house is sold, and we found a few houses we like this weekend which we have put an offer in on one of them.

We should be ok, as the price would mean we are well within the affordability calculators we have done online, but I am a bit nervous that these changes could affect us.

For example: the people buying our place. They had a mortgage agreed in principle but will need to reapply under the new rules tomorrow.

Is this really going to be as bad as some of the news articles I have just been reading about it?
People are talking of it putting a holt on the housing market as people struggle to get the loans they need and the process taking a lot longer

[Sarnie]

MMR officially comes in to effect on 26th April, not tomorrow.

However, a lot of lenders have been phasing in their MMR policies for weeks now. Therefore it totally depends on if your lender has chosen to implement their MMR policies yet. Any AIP that has been submitted under current regulations will need to be resubmitted under the new rules after 26th April, or the date when that lender implements their MMR policy, whichever date is sooner. Basically if anyone is dithering over making a decision on a product, do it NOW!

Have no doubt, MMR is going to have a significant impact on lending figures and it will no longer be a simple 5x salary to arrive at a lending figure. It's also going to impact Interest Only lending and the plausibility of your repayment strategy, maximum ages will drop to 65 with a lot of lenders or you will need to evidence income into retirement via pension forecasts etc etc.

OP, I'm a broker, happy to help if you feel you need it

[Rick101]

Could search for myself, but go on...what are the changes?

Remortgage time for me soon.

[skeeterm5]

Sarnie said:

MMR officially comes in to effect on 26th April, not tomorrow.

However, a lot of lenders have been phasing in their MMR policies for weeks now. Therefore it totally depends on if your lender has chosen to implement their MMR policies yet. Any AIP that has been submitted under current regulations will need to be resubmitted under the new rules after 26th April, or the date when that lender implements their MMR policy, whichever date is sooner. Basically if anyone is dithering over making a decision on a product, do it NOW!

Have no doubt, MMR is going to have a significant impact on lending figures and it will no longer be a simple 5x salary to arrive at a lending figure. It's also going to impact Interest Only lending and the plausibility of your repayment strategy, maximum ages will drop to 65 with a lot of lenders or you will need to evidence income into retirement via pension forecasts etc etc.

OP, I'm a broker, happy to help if you feel you need it

About time too - introduce some much needed common sense into the mortgage lending criteria.

S

[blank]

I was applying over a year ago with Accord and I'm pretty sure they were using this then?

[Sarnie]

blank said:

I was applying over a year ago with Accord and I'm pretty sure they were using this then?

Accord have always been pedantic but they wouldn't have been implementing MMR policy a year ago.

[westberks]

Sarnie said:

blank said:

I was applying over a year ago with Accord and I'm pretty sure they were using this then?

Accord have always been pedantic but they wouldn't have been implementing MMR policy a year ago.

Those guys have been making it up for years, MMR would probably improve them if they fully implemented it.

I'm amazed that some lenders have left it this late as systems such as Santander's are very likely to go pop.

Anyone thinking of applying at the moment would do well to check service standards as some lenders have ridiculous backlogs.

[onomatopoeia]

Sarnie said:

maximum ages will drop to 65 with a lot of lenders

Even though the state pension age is heading upwards?

[Sarnie]

onomatopoeia said:

Even though the state pension age is heading upwards?

It has nothing to do with State pension age.

The buzz word is 'plausibility'. Currently you can state a retirement age of say 70 or even 75 and as long as the term ends before that age, they will grant the mortgage with asking questions about your retirement income.

Now, they will want to know how plausible it is for that applicant to work beyond the age of 65. For example, if the job is of a physical nature, how plausible is it that they will be working till circa 70 years old.

You are going to see a lot more discretionary application declines in my opinion. I've already heard from a few other brokers that have had what was termed as 'subjective declines' which effectively means that the application didn't fall down on anything in particular, the underwriter just didn't like the look of the application as a whole...

[P-Jay]

Sounds like a sensible move, affordability calculators have been used for other lending for years now. I think we started using them in about 2007 for Asset Finance, caused a few shockwaves at the time - it's never easy telling someone who feels and indeed seems wealthy they're just about scraping by each month.

Just ran through the Nationwide affordability calculator, they offered roughly 4.5 times my Wife and I's joint income, based on no existing borrowing, £250 a month in childcare and £80 student loans. They also generously offered a term of between 24 years and 25 years, no more, no less.

Edited by P-Jay on Tuesday 15th April 11:43

Edited by P-Jay on Tuesday 15th April 11:48

[scottri]

P-Jay said:

Sounds like a sensible move, affordability calculators have been used for other lending for years now. I think we started using them in about 2007 for Asset Finance, caused a few shockwaves at the time - it's never easy telling someone who feels and indeed seems wealthy they're just about scraping by each month.

Just ran through the Nationwide affordability calculator, they offered roughly 4 times my Wife and I's joint income, based on no existing borrowing, £250 a month in childcare and £80 student loans. They also generously offered a term of between 24 years and 25 years, no more, no less.

Edited by P-Jay on Tuesday 15th April 11:43

I just checked the nationwide one as well. Its actually offering me greater lending since the extra questions. I suspect this is due to me having no commuting costs, fairly low council tax, no loans etc. Its offered 5.8 times basic income or around 5 times income including bonus & overtime. Term requested 31 years.

That level of borrowing would consume around 50% of my net pay at 4.5% interest. Or 60% of net pay at 6.5% interest.

I thought the change would result in lower lending!

[P-Jay]

scottri said:

P-Jay said:

Sounds like a sensible move, affordability calculators have been used for other lending for years now. I think we started using them in about 2007 for Asset Finance, caused a few shockwaves at the time - it's never easy telling someone who feels and indeed seems wealthy they're just about scraping by each month.

Just ran through the Nationwide affordability calculator, they offered roughly 4 times my Wife and I's joint income, based on no existing borrowing, £250 a month in childcare and £80 student loans. They also generously offered a term of between 24 years and 25 years, no more, no less.

Edited by P-Jay on Tuesday 15th April 11:43

I just checked the nationwide one as well. Its actually offering me greater lending since the extra questions. I suspect this is due to me having no commuting costs, fairly low council tax, no loans etc. Its offered 5.8 times basic income or around 5 times income including bonus & overtime. Term requested 31 years.

That level of borrowing would consume around 50% of my net pay at 4.5% interest. Or 60% of net pay at 6.5% interest.

I thought the change would result in lower lending!

I suspect it will for some, like you, My wife and I have virtually no borrowing, we owe about £1k on a 0% credit card and well that's it - we've got 2 kids and spend £200 a month on commuting - the mortgage they're offering would need 41% of our joint income to pay - at 5% if that doubled - which isn't out of the question if we look at 90's post recession rates we would get by without much in the way of luxuries - at 15% - it's happened before we'd have to default to feed the kids. So there's no way I'd borrow that much, we're after about 70% of what they're offering as a max on the longest fixed rate we can find - well as soon as we've got the deposit saved up - maybe another 12 months.

I think the people who are 'hurt' by this are the 'flash couple' types - the white A3 cabrio and Black ML leased and on the drive, the holidays to Dubai, designer clothes and idevices on the credit card who have historically used income multipliers to borrow lots for equally flashy apartments and houses and lived on minimum Cc payments and interest only mortgages.

[vescaegg]

P-Jay said:

scottri said:

P-Jay said:

Sounds like a sensible move, affordability calculators have been used for other lending for years now. I think we started using them in about 2007 for Asset Finance, caused a few shockwaves at the time - it's never easy telling someone who feels and indeed seems wealthy they're just about scraping by each month.

Just ran through the Nationwide affordability calculator, they offered roughly 4 times my Wife and I's joint income, based on no existing borrowing, £250 a month in childcare and £80 student loans. They also generously offered a term of between 24 years and 25 years, no more, no less.

Edited by P-Jay on Tuesday 15th April 11:43

I just checked the nationwide one as well. Its actually offering me greater lending since the extra questions. I suspect this is due to me having no commuting costs, fairly low council tax, no loans etc. Its offered 5.8 times basic income or around 5 times income including bonus & overtime. Term requested 31 years.

That level of borrowing would consume around 50% of my net pay at 4.5% interest. Or 60% of net pay at 6.5% interest.

I thought the change would result in lower lending!

I suspect it will for some, like you, My wife and I have virtually no borrowing, we owe about £1k on a 0% credit card and well that's it - we've got 2 kids and spend £200 a month on commuting - the mortgage they're offering would need 41% of our joint income to pay - at 5% if that doubled - which isn't out of the question if we look at 90's post recession rates we would get by without much in the way of luxuries - at 15% - it's happened before we'd have to default to feed the kids. So there's no way I'd borrow that much, we're after about 70% of what they're offering as a max on the longest fixed rate we can find - well as soon as we've got the deposit saved up - maybe another 12 months.

I think the people who are 'hurt' by this are the 'flash couple' types - the white A3 cabrio and Black ML leased and on the drive, the holidays to Dubai, designer clothes and idevices on the credit card who have historically used income multipliers to borrow lots for equally flashy apartments and houses and lived on minimum Cc payments and interest only mortgages.

I agree it looks that way. I re-did the calculator just now and the amount I can borrow has increased. We however only have a mortgage and no other borrowing or debts - probably very safe or 'boring' in the eyes of a mortgage company

[onomatopoeia]

Sarnie said:

It has nothing to do with State pension age.

The buzz word is 'plausibility'. Currently you can state a retirement age of say 70 or even 75 and as long as the term ends before that age, they will grant the mortgage with asking questions about your retirement income.

Now, they will want to know how plausible it is for that applicant to work beyond the age of 65. For example, if the job is of a physical nature, how plausible is it that they will be working till circa 70 years old.

Fair enough - plenty of jobs that aren't physical and can be done to state pension age or beyond though.

I'm not looking for a mortgage, was just curious.

[Sarnie]

scottri said:

I just checked the nationwide one as well. Its actually offering me greater lending since the extra questions. I suspect this is due to me having no commuting costs, fairly low council tax, no loans etc. Its offered 5.8 times basic income or around 5 times income including bonus & overtime. Term requested 31 years.

That level of borrowing would consume around 50% of my net pay at 4.5% interest. Or 60% of net pay at 6.5% interest.

I thought the change would result in lower lending!

The changes will affect people who actually can't afford it.

Lenders will now delve into details such as childcare, travel costs, utility bills, amount spent of food, number of people in the household not just on the mortgage etc.

The problems coming through at the moment are that some lenders are using UK National average statistics for a lot of the categories, so even if you spend £150 a month on your shopping from Lidl, lenders will apply the UK average figures which might be £300 and disregard the figure you've given.

There are certainly going to be some teething problems as some applications that would have previously sailed through will be scrutinised heavily now.

[scottri]

Sarnie said:

The changes will affect people who actually can't afford it.

Lenders will now delve into details such as childcare, travel costs, utility bills, amount spent of food, number of people in the household not just on the mortgage etc.

The problems coming through at the moment are that some lenders are using UK National average statistics for a lot of the categories, so even if you spend £150 a month on your shopping from Lidl, lenders will apply the UK average figures which might be £300 and disregard the figure you've given.

There are certainly going to be some teething problems as some applications that would have previously sailed through will be scrutinised heavily now.

Nationwide didn't ask any of the questions about utilities other than council tax - although i guess that could be coming later or just factored in quietly. It did ask if there is anything else they should know about (!?), just how much info are they expecting us to offer up? My passion for wine/beer costs a lot!

While its nice to be offered a little more money (and it has resulted in me looking on rightmove) I don't think i'd increase my borrowing from its current level (24% of net pay) to the max offered. Feels like too much of a risk to me. I wouldn't want to go much over 30-35% of net take home.

Plus, any move i did would result in a large (for me) stamp duty bill. The thresholds really need to change IMO.

[Sarnie]

scottri said:

Nationwide didn't ask any of the questions about utilities other than council tax - although i guess that could be coming later or just factored in quietly. It did ask if there is anything else they should know about (!?), just how much info are they expecting us to offer up? My passion for wine/beer costs a lot!

While its nice to be offered a little more money (and it has resulted in me looking on rightmove) I don't think i'd increase my borrowing from its current level (24% of net pay) to the max offered. Feels like too much of a risk to me. I wouldn't want to go much over 30-35% of net take home.

Plus, any move i did would result in a large (for me) stamp duty bill. The thresholds really need to change IMO.

Nationwide didn't ask any of those questions as all you've done is enter figures into the affordability calculator. The questions will come when you submit an AIP and then further questions when the full application is submitted which will then be crossed referenced with the documents you provide. So, saying your gas and electric bills only cost you £50 a month when your statements say £150 a month, isn't going to fly any more.

[Rick101]

Utility bills are failty easy to audit.

How would thy calculate food costs? That much be almost imposible.

[scottri]

Sarnie said:

Nationwide didn't ask any of those questions as all you've done is enter figures into the affordability calculator. The questions will come when you submit an AIP and then further questions when the full application is submitted which will then be crossed referenced with the documents you provide. So, saying your gas and electric bills only cost you £50 a month when your statements say £150 a month, isn't going to fly any more.

Ah, ok, thanks. Have you experienced much difference in the calculator lending values and those after AIP? Just wondering how much i could expect the loan amount to change? (I suspect this is a 'a how long is a piece of string' type question....)

[mike-r]

Rick101 said:

Utility bills are failty easy to audit.

How would thy calculate food costs? That much be almost imposible.

BMI?