Tag Archives: credit
UK mortgage seekers set to change spending to deal with tougher lending rules
A fifth of mortgage borrowers in the UK will use cash more frequently to avoid lenders seeing exactly what items they are spending on due to tougher lending regulations brought in a year ago. Some 25% plan to rein in their spending by £159 a month in a bid to present themselves as sensible with money and a fifth plan to spend on credit cards to maintain a healthier balance in their current accounts and pay off the balance each month. The research by comparison site MoneySuperMarket shows that 20% of those looking to apply for a mortgage in the next three years are planning to use cash more frequently to hide exactly what they spend their money on from a prospective lender. Some 21% will pay for more items on their credit card and then clear the balance at the end of each month so they can maintain a healthier balance in their current account. Spend-conscious borrowers also plan to rein in their monthly spend by an average of £159 by cutting back on non-essential items so as not to appear frivolous with their money. And 29% intend to pay off all debts in the lead up to their mortgage application. However, some 8% had never even heard of the new mortgage market review rules. ‘Since the new mortgage lending rules came into play a year ago, those looking to remortgage, existing borrowers who are moving home and looking for a new deal and first time buyers will have been subject to their lender looking more closely, almost forensically, at their monthly outgoings,’ said Kevin Mountford, head of banking at the site. ‘While the rules were introduced for the right reasons, in some cases borrowers who can easily afford a mortgage are being turned down for arbitrary reasons, despite them being able to easily afford mortgage repayments,’ he pointed out. ‘We wouldn’t want to see the ease of approval going back to the pre-credit crunch levels, it is clear than some consumers have changed their spending habits in order to pass the tests, so may be trying to paint a picture that is far from the reality just to satisfy the requirements,’ he added. He explained that paying off debts is always a good way to start when it comes to applying for a mortgage as existing borrowing will be taken into account by a lender when it comes to your application. Reducing the amount you spend each month could also help when it comes to the amount a lender thinks you can afford to borrow. ‘But those trying to ‘play’ the system should exercise caution as lenders may still require you to prove where your cash goes. Using a credit card to hide your spending may also count against you as lenders have access to your credit report, so will be able to see a real-time snapshot of your credit card balance at any time within the month,’ Mountford added. ‘Research… Continue reading
Research reveals concerns about new mortgage rules in UK
More than half of people who are either considering, or are in the course of applying for a mortgage in the UK believe that the obligation placed upon mortgage lenders to assess their ability to repay will slow down the application process. Overall 59% are in this position and 32% of those who have yet to apply also said they would find it fairly difficult to obtain evidence of all the expenditure information they believe a lender needs to assess a mortgage application. The research from Equifax, a credit information provider, also found that 69% who responded to the survey expressed concern that more detailed affordability checks would affect the amount they could borrow and 40% are worried about the time it will take to complete their mortgage application. The new responsibilities placed upon lenders, which came into effect in April 2014 as a result of the Mortgage Market Review, place even greater onus on the lender to assess an applicant's ability to repay. The applicant's credit history is likely to play a crucial role in that assessment, alongside other information gathered as part of the application process. ‘It is important to remember that lenders will take into account the information provided on the application form and will look at an applicant's income and outgoings to ensure they can afford the mortgage they are applying for, now and in the future. However, our research suggests that 22% are still unconvinced that the new affordability rules will help prevent home owners overstretching themselves in the long term,’ said Laura Barrett of Equifax Consumer Affairs. ‘We would recommend compiling any financial documents and expenditure information needed to support a mortgage application, as soon as the application process starts. Advance preparation will hopefully avoid any unnecessary delays,’ she pointed out. ‘A lender will typically look at an applicant's credit history when determining whether they meet eligibility criteria and may also use credit information during affordability assessments. Therefore, it is suggested that individuals check their credit report before making any applications to ensure that it is in the best possible shape for them,’ she added. Continue reading
Affordability could put brakes on house price growth in London
Affordability constraints will limit house price growth in mainstream London over the next five years, according to a new analysis report. In London, the total value of housing rose by 20% or £247 billion in 2014 alone and by 61% or £563 billion over the past five years and this has huge consequences for Londoners, whose finances are being stretched further and further as house prices continue to rise at a disproportionate rate to the rest of the country.? According to the analysis by real estate firm Savills, this value gap simply cannot widen at this rate indefinitely, which is why the firm expects mainstream London to see just 10.4% growth over the next five years, compared to 19.3% across the UK as a whole. Katy Warrick, London development researcher at Savills, pointed out that mortgage regulation is one of the main constraining factors to further house price growth. ‘This new lending environment is one of loan to income caps, stress testing of borrowers’ affordability and capital repayment requirements. Coupled with fast moving house prices against a context of limited income growth, this means higher deposits are required,’ she said. ‘Jump forward five years and we expect that prices will grow just 10.4%, as fewer first time buyers will have been able to access home ownership for these reasons,’ she added. The analysis shows that at the end of the third quarter of 2013, a first time buyer household earning £53,000, the median in London according to the Council of Mortgage Lenders, could have afforded to buy a property worth £264,000 at 3.74 loan to income multiple with a 75% loan to value mortgage. This assumes they could raise the required £65,000 deposit. At prevailing interest rates servicing this mortgage would account for 21% of gross household income. ‘Over the course of 2014 incomes grew by 4%, and if we assume the same mortgage conditions as before our hypothetical buyer can now borrow £206,000 and afford a property worth £274,000. The amount they can afford has risen by 4%, but, as we have seen, house prices will have risen much more,’ explained Warrick. In this example, the £264,000 house is now worth £320,000, resulting in a funding shortfall of some £46,000. ‘The options for buyers are pretty stark; find a much bigger deposit, borrow more money at an even higher multiple of income, or buy a smaller property or one in a less expensive area. The first two options may not be possible, the last may not be desirable,’ she added. If the same example is taken into 2019, the property would be worth £353,000 while incomes will have risen by 22% according to Oxford Economics. Assuming loan to value ratios remain the same, the buyer could now obtain a property worth £324,000 with a £252,000 mortgage. This means that while the funding shortfall is reduced, it still sits at £29,000. ‘Even if that shortfall can be found, the costs of servicing the mortgage… Continue reading
