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Martin’s Money Tips

Warning: Mortgages just got more difficult to get
10 need-to-knows about changes for first-time buyers & remortgagers

The Mortgage Market Review changes, which started on Sat, have changed the game in the mortgage world. Lenders must now obey strict rules to check whether mortgages are affordable. Here are the 10 things you need to know.

1. It’s not “can you afford it now?” but “can you afford it at 7%?” Lenders must stress-test whether your mortgage is affordable, even if rates shot up to 6-7%. They’ve always asked about income and big bills such as utilities & debt, but they’ll now want to know about other expenses too, such as…

Gym membership | Entertainment and eating out | Car servicing, MOT & tax
Groceries | Childcare, school fees or child maintenance

Ignore the scaremongering over this. It’s not ‘they’ll tell you to stop having takeaways’. They’re judging affordability, so if eating out costs push you over the edge it can be a problem. If you can comfortably afford it, it’s not.

2. You’ll need proof of income. Lenders MUST now see evidence of your income. They’re also likely to want bank statements to see the money going into your account and outgoings you’ve described match up.

So go through your statements with a fine-tooth comb. If there’s something unusual a lender will notice, send an explanation in with the statement rather than just get refused out of hand.

3. Rates are being pushed up due to this. A few lenders have made their deals slightly more expensive to put off customers and give themselves breathing space while the new rules bed in.

This could be a taste of things to come. The UK’s improving economy means it’s likely interest rates will rise sooner, and mortgage fixes are based on long-term predictions of interest rates. Mortgage rates are close to all-time lows right now, so if you’re fixing, sooner could be better.

Top Mortgage DEALS SELECTION

Top first-time buyer mortgages (all 90% LTV – ie, needing 10% deposit)

Lender

Deal

Rate

Fee

SVR (i)
(rate after fix ends)

Overall APR (i)
(if you never switch)

Britannia

2yr fixed

3.95%

£0

4.74%

4.7%

Yorkshire Bank*

5yr fixed

4.29%

£999

4.95%

4.9%

Post Office

2yr tracker

4.99% (i)

£995

4.49%

4.8%

HSBC

Lifetime tracker

3.99% (i)

£1499

n/a

4.2%

Top remortgages (all 75% LTV, ie, you need to have 25% equity in your property)

Accord

2yr fixed

2.29%

£475

5.99%

5.5%

Post Office

5yr fixed

3.38%

£0

4.49%

4.1%

Chelsea BS*

2yr tracker

2.14% (i)

£475

5.79%

5.2%

HSBC

Lifetime tracker

2.89% (i)

£0

n/a

2.9%

Based on £150,000 loan over 25yrs on a capital repayment mortgage with fees paid upfront. Ensure you budget so it’s affordable – or as they say: “Your home may be repossessed if you don’t keep up repayments.” (i) Variable so can change.
These picks are by MSE Lesley, our in-house mortgage broker.

These rates are for one specific borrowing amount. For a bespoke list, use comparison sites incl Google*, TotallyMoney & Money Advice Service.

4. FREE printed First-Time Buyers or Remortgaging booklet. Affordability’s just the latest hurdle. Before picking a mortgage you need to navigate your credit score, choosing a deal, incl Help2Buy & more. This is something to take your time over, so I’ve written two free 50+ page booklets to help.

5. Apply at the right time. Before applying, think about where you are in life. Are you about to get married? Starting a family? To boost your chances of getting the deal you want, apply before you’ll have a babe in arms or your lender will reduce your affordability & lend you less. But ALWAYS make sure you don’t overstretch yourself.

See the full Money Makeover Savings checklist for full info.

6. Crucial Mortgage Planning I: Give yourself a Money Makeover. With outgoings now a more significant part of acceptance criteria, it’s crucial to minimise expenditure, preferably 3mths in advance, so it’ll show clearly on bank statements. Even if you’re too late for that, all savings can help.

Here are my top 10 big bills to check you’re not overpaying on. I’ve focused on ‘pain-free’ savings – cutting costs, not curtailing your lifestyle…

1. Gas & elec 2. Credit card interest 3. Broadband & phone 4. Food shopping 5. Petrol 6. Car insurance 7. Home insurance 8. Water bills
9. Train fares. 10. Mobile contracts

 

7. Crucial Mortgage Planning II: Give your credit score a makeover. Even if it’s affordable, you’ll still need a strong credit score to get a mortgage. As each lender has its own bespoke criteria, this is more art than science. Yet a few things tend to work for all, here’s a taster…

– Check your credit file for errors. You can check for free at all three credit reference agencies, then go through it with care.
– Ensure no active accounts are mis-addressed:
An old non-closed mobile addressed to your old home can kibosh acceptance – check on your file.
– Get on the electoral roll. Go to AboutMyVote to register on the electoral roll or to check whether you’re already registered.
– Boost acceptance chances – go 0.1% higher than the min. If you need a min 10% deposit, pay 10.1% – not being on the brink can ease things.
– ALWAYS pay ALL your bills on time. It might sound obvious, but failing to can severely damage your credit rating.

These are just the tip of the iceberg. See full mortgage-boosting tips in the First Time Buyers’ mortgage guide.

8. A little worry for remortgagers. Affordability checks for new mortgages make sense – renting isn’t a dirty word and is a far better option than an unaffordable mortgage causing negative equity or repossession.

Yet for those trying to switch to a cheaper deal, a rejection due to unaffordability may leave them imprisoned on their existing, more expensive deal. Lenders are allowed to waive some affordability rules if you’re not increasing your debt (beware if you’re looking for more) but they don’t have to, and we’re not yet sure what attitude they’ll adopt. Listen to my Radio 5 Live analysis of this.

9. Lenders’ interviews may now take 2 to 3 hours. It used to take 30mins – 1hr for the fact-find and application, but with this change, it could now take far longer and may make getting appointments more difficult.

10. Brokers are quicker & give better choice. While the rules are new for lenders, mortgage brokers’ regulations have mandated these processes for 10yrs. So brokers are likely to be more speedy & can take only an hour.

Not only that, but unlike lenders that’ll only talk about their own product, brokers can search across the entire market. See our Top Brokers guide for full info, but for speed, here are our 3 top picks:

– Fees-free, searches all but direct deals. London & Country* is a phone broker that searches the 1,000s of deals available to brokers, but not the few ‘direct to consumer’ products. Yet you can easily use a comparison site to check direct deals in case they win. It earns via commission.

– Pay £399 to check all deals. Pay £399 and Which? Mortgage Advisers is a phone broker searching all broker and direct deals – the only ones it may miss are other brokers’ exclusives. It earns via fees AND commission.

– Face-to-face local advice. If you prefer face-to-face advice, Unbiased.com lists local mortgage brokers. See key questions to ask.