Mortgage application changes 14-04-14

Mortgage application changes 14-04-14

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Sarnie

8,025 posts

208 months

Tuesday 15th April 2014
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scottri said:
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....)
Definitely a piece of string question! smile

The lending decision will be based on your entire circumstances and the lenders interpretation of them.

I've just encountered a new one from a lender! I submitted an application today for an applicant who will be 64 at the end of the term with a stated retirement age of 65. This would have sailed through without question previously. The lender called me and asked for the clients retirement strategy? I advised that the mortgage finished before retirement and therefore the answer is not really relevant. The lender than stated that they now had to ask for retirement strategies for all applicants where the term finished after the age of 55! I asked why and she said that it was in case the applicant has to retire early due to ill health. She asked what Critical Illness and/or Income Protection provisions the client was putting in place and I advised that we hadn't got that far in the process yet. The intimation was that we/the client need to be ensuring that the mortgage is affordable for the full 25 years, to cover all circumstances.

At this moment in time, I've no idea how any answer provided to the above is going to play out with each lender but I think there is going to be a lot of trial and error, with applications that were previously straight forward previously, now falling foul of MMR.

Sarnie

8,025 posts

208 months

Tuesday 15th April 2014
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mike-r said:
BMI?
Haha!

It wouldn't suprise me to see "waist size" on mortgage applications soon!! smile

GrizzlyBear

1,072 posts

134 months

Tuesday 15th April 2014
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Considering how much tax-payers are being forced to subsidise the housing market (OK, it hasn't been a fair market for decades), I can't imagine this will have been allowed to reduce the amounts people can borrow, the gov would not allow it. Especially when they introduced schemes like help to Buy sell, which is obvious price supporting.

Edited by GrizzlyBear on Tuesday 15th April 15:06

P-Jay

10,550 posts

190 months

Tuesday 15th April 2014
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Sarnie said:
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.
When I worked in finance, we weren't required to go into the detail that Nationwide do in regards to childcare etc - we took details of dependants etc and used an 'industry average' frankly if it ever came down to actually asking to see statements the information they gave us was written in absolute fiction anyway. I lost count of the number of times I'd get an 'nudge and a wink' when I asked for their income and some vague excuse about how their accountant did something tricky with dividends like it was witchcraft or something - fair enough - their tax affairs where their own - but unless they were taking bag of cash home from the office it simply didn't exist.

As others have said, the info on nationwide will be enough for an 'in principle' offer - the days of 'forgetting' about your £500 a month childcare bill, or your £400 a month petrol habit are over.

I'm been proven wrong so far, but I can't help but think there will be shockwaves through the market when interest rates go up - but I suspected the same when all the people who self-certed a massive mortgage 8-10 years ago had to remortgage, but it didn't seem to materialise - I can only assume that rates falling from 3.5% to 0.5% was enough to cushion the blow of your 2 year introductory period ending.

Type R Tom

3,859 posts

148 months

Tuesday 15th April 2014
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I had a DIP with Nationwide in early March for 5 x salary with a 15% deposit. Do you reckon I’ve lost that now? I really hope not, prices are only going 1 way in my area and if I have to lower my buying potential I’m basically screwed.

Though if everyone is affected I wonder what it will do to the property prices. It’s I nightmare locally having to fight with the entire buy to let brigade.

P-Jay

10,550 posts

190 months

Tuesday 15th April 2014
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Type R Tom said:
I had a DIP with Nationwide in early March for 5 x salary with a 15% deposit. Do you reckon I’ve lost that now? I really hope not, prices are only going 1 way in my area and if I have to lower my buying potential I’m basically screwed.

Though if everyone is affected I wonder what it will do to the property prices. It’s I nightmare locally having to fight with the entire buy to let brigade.
This might just be one of the rare times in history that a policy has been implemented for the long-term good, and not just short-term gain.

Personally I think the housing market is over-priced - it's moved through the deepest darkest recession in 100 years virtually unscathed and at this, the first few months of a real recovery jumped 10% or more in parts.

I think it's easy to compare it to any other market and assume that supply and demand will ensure a fair price / value, but that's hugely over-simplifying it - in actual fact the market has been heavily managed and carefully steered for years, even decades - but certainly since 2008 it's been protected at all costs - because a price crash would kill the balance sheets of our banks and we'd be back a square one with OAPs queuing up outside the banks to get their money out.

These new smart lending criteria should mean that it's no longer possible to borrow too much (well, that's the theory) unfortunately it might just mean that people in your situation cannot borrow 5 times their income (a frankly huge multiple) to buy something - and that's going to hurt, but if we consider something similar across the nation then sellers aren't going to get £250k or whatever for a 3 bed semi in the burbs - after all the price of something is governed by what someone is willing or able to pay - so Mr and Mrs X selling their 3 bed starter home will have to accept £200k instead, or stay put - equally Mr and Mrs 4 bed detached aren't going to be able to sell theirs for £350k if their buyers are only getting £200k for theirs and on and on. It, along with higher interest rates in next quarter or the one after should mean a reduction in prices over the next few years - if it's managed as well as the recession - it should be no more than stagnation or gentle reduction.

So whilst you might be unhappy in a few months and have to change your plans - but you might just be able to buy the same house for 20% less next year and not have to hand over 60% of your take-home to pay for it.

Here's hoping anyway.

Sarnie

8,025 posts

208 months

Tuesday 15th April 2014
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Type R Tom said:
I had a DIP with Nationwide in early March for 5 x salary with a 15% deposit. Do you reckon I’ve lost that now? I really hope not, prices are only going 1 way in my area and if I have to lower my buying potential I’m basically screwed.

Though if everyone is affected I wonder what it will do to the property prices. It’s I nightmare locally having to fight with the entire buy to let brigade.
Any DIP submitted before the MMR rules were applied and hasn't gone to a full application, will have to be re-DIP'd under the new rules and depending on your answers to the additional questions, your lending decision may change, or it may not!

Type R Tom

3,859 posts

148 months

Tuesday 15th April 2014
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Sarnie said:
Type R Tom said:
I had a DIP with Nationwide in early March for 5 x salary with a 15% deposit. Do you reckon I’ve lost that now? I really hope not, prices are only going 1 way in my area and if I have to lower my buying potential I’m basically screwed.

Though if everyone is affected I wonder what it will do to the property prices. It’s I nightmare locally having to fight with the entire buy to let brigade.
Any DIP submitted before the MMR rules were applied and hasn't gone to a full application, will have to be re-DIP'd under the new rules and depending on your answers to the additional questions, your lending decision may change, or it may not!
Does anyone know the new questions?

It's just so frustrating, in the last few months as I've been getting the last few ££££ together I've seen the prices going up quicker than I could save. I've had a mortgage before and now ready to buy with no chain so thought I was in a good position with 15% deposit and absolutely £0 debt.


Type R Tom

3,859 posts

148 months

Tuesday 15th April 2014
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Well just had a go on the Nationwide calculator and the only additional questions were travel costs, council tax and building contents. Answered them best I could and what they are willing to lend me has dropped by about £20k. I'm screwed.

Sarnie

8,025 posts

208 months

Tuesday 15th April 2014
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Type R Tom said:
Well just had a go on the Nationwide calculator and the only additional questions were travel costs, council tax and building contents. Answered them best I could and what they are willing to lend me has dropped by about £20k. I'm screwed.
I know that's not great for you but it's certainly interesting from my point of view as a broker to see that....things are going to be a bit uncertain for a few months I feel....

It also will render comparison websites next to useless as there is no way they can incorporate MMR policy into their searches....

Type R Tom

3,859 posts

148 months

Tuesday 15th April 2014
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Sarnie said:
I know that's not great for you but it's certainly interesting from my point of view as a broker to see that....things are going to be a bit uncertain for a few months I feel....

It also will render comparison websites next to useless as there is no way they can incorporate MMR policy into their searches....
So will each company have their own policy? I was happy to go with the Nationwide as they I've always banked with them and they came up with a good offer, I'm just looking for the right place. I'll need to call them and give them the benefit of the doubt but I think the website calculators are pretty close. Looks like I'm going to have to widen the field and get a broker

All my plans have gone up in the air!

Sarnie

8,025 posts

208 months

Tuesday 15th April 2014
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Type R Tom said:
So will each company have their own policy? I was happy to go with the Nationwide as they I've always banked with them and they came up with a good offer, I'm just looking for the right place. I'll need to call them and give them the benefit of the doubt but I think the website calculators are pretty close. Looks like I'm going to have to widen the field and get a broker

All my plans have gone up in the air!
Yep, each company will have their own policy and interpretations of MMR. Some will be more stringent than others. I think there is going to be a period of re-learning the lending policies of companies all over again. Its my personal opinion that intermediaries are going to become more important to people again, as consumers struggle to get what they want from lenders directly. I had someone mail me last night who spent over two hours on the phone to their current lender only to get a figure £15k under what they needed and were assured wouldn't be a problem at the start of the call...........

audidoody

8,595 posts

255 months

Wednesday 16th April 2014
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This all strikes me as the kind of politically-motivated BS and theatrics we see in airport security.

1. A mortgage's affordability goes up every year as the debt is eroded by inflation. What seems a big monthly payment now will be pocket money in 10+ years time.

2. People living high on the hog when unencumbered by a mortgage usually curtail their spending to ensure they can afford a mortgage repayment plan ("What do you think honey - shall we go on a world cruise and not pay the mortgage for six months?"

3. Rent and mortgage payments are not too far apart. If someone can't afford a mortgage how can they afford to rent?

4. A single person's mortgage affordability rating is likely to change after a few years if/when they get married and if/when they have kids ("Please can you tell us how many children you intend to have and whether they will be in perfect health or not".)

5. How can anyone predict their future earnings ("Please guarantee you will be in continuous employment for the next 25 years or not and that the company you own/work for won't go under""

6. Its patronising. "We see you own a Ferrari. We don't think you can afford a mortgage AND a fast car". "Erm .. I plan to sell the car and use the bus".

It's political grandstanding and simply moves the lending criteria from one stupid extreme (125% mortgages from Northern Rock) to another.


Edited by audidoody on Wednesday 16th April 13:10

audidoody

8,595 posts

255 months

Wednesday 16th April 2014
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P-Jay said:
but you might just be able to buy the same house for 20% less next year and not have to hand over 60% of your take-home to pay for it.

Here's hoping anyway.
And how much higher deposit do you think lenders will then require if prices drop 20 per cent? Here's my guess - 40 per cent.

Type R Tom

3,859 posts

148 months

Wednesday 16th April 2014
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audidoody said:
3. Rent and mortgage payments are not too far apart. If someone can't afford a mortgage how can they afford to rent?
In my part of the world because of the students a 3 bed house costs around £1200 to rent per month and £250,000 to buy which with a 15% deposit is about £1000 per month.

Very responsible, forcing people to pay more in rent than a mortgage!

audidoody

8,595 posts

255 months

Wednesday 16th April 2014
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KInd of proves my point. You'll have a situation where someone able to afford £1,200 a month in rent will have to answer a load of damn-fool questions to pay less on a mortgage ("oh - we see from your application form that you have a pet. We can;t give you a mortgage until you get rid of your dog - vet's fees and feeding it means you might not be able to pay us")

Sarnie

8,025 posts

208 months

Thursday 17th April 2014
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Just thought people might be interested in what additional questions the MMR policy had brought in. Here are the questions from a new page that has appeared with Natwest's application;

"Future Affordability

Are there any loans or other commitments not yet due, which will become payable during the mortgage?
Yes No

Our affordability uses expenditure including household bills and leisure activities. Based on the customers circumstances, do they have any other commitments that are out of the ordinary e.g. career related qualifications or leasehold/ground rent charges? (Please note this list is not exhaustive).
Yes No

Does the customer have any plans for Property Related Expenses which will affect their ability to pay this mortgage?
Yes No

Are there any personal changes that will affect the customer's ability to pay this mortgage e.g. change to job, changes to income or expenditure, changes to profits & family circumstances?"

NightDriver

1,080 posts

225 months

Thursday 17th April 2014
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Sarnie - Interesting questions their thanks for sharing.... do you think they will actually pay any attention to the answers or are they just paying lip service to the new rules?

Are you finding the extra checks are affecting what people can borrow compared to a few months ago, or is it too early to properly tell? Do you think it's going to have much impact or people re-mortgaging as well?

Saw this article http://www.property118.com/will-mortgage-market-re... earlier which looks a bit of a concern, surely just an example of some early teething problems with the new systems though?

onomatopoeia

3,469 posts

216 months

Thursday 17th April 2014
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NightDriver said:
Saw this article http://www.property118.com/will-mortgage-market-re... earlier which looks a bit of a concern, surely just an example of some early teething problems with the new systems though?
Read that, tried the Nationwide calculator. It says they would potentially lend me a sum that equates to 4.67 times my (not impressive by PH standards) salary, which is more than double what I currently owe and which flatly contradicts what the article says about lenders not being willing to lend enough to buy a house.

Sarnie

8,025 posts

208 months

Thursday 17th April 2014
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NightDriver said:
Sarnie - Interesting questions their thanks for sharing.... do you think they will actually pay any attention to the answers or are they just paying lip service to the new rules?

Are you finding the extra checks are affecting what people can borrow compared to a few months ago, or is it too early to properly tell? Do you think it's going to have much impact or people re-mortgaging as well?

Saw this article http://www.property118.com/will-mortgage-market-re... earlier which looks a bit of a concern, surely just an example of some early teething problems with the new systems though?
It's not entirely clear exactly how much weighting is going to be put into the answers, it really is going to be a case of trial and error. I would assume that most people would not know about future affordability and would answer no to the questions in most cases. I would assume that the questions are trying to catch the cases where somebody discloses, for example, that they owe their parents £50k that they are going to have to start repaying next year at £1k a month etc.

The extra budget questions really are having an effect, the Natwest application I was doing had an AIP agreed two weeks ago at £181k, today the revised lending was down to £172k.....