News & Features

The biggest change to mortgage rules in a decade

New rules which come into force today mean that anyone who wants to take out a mortgage will now have their whole lifestyle scrutinised. It's all part of a plan by the Financial Conduct Authority to stop lenders handing out mortgage debt to those of us who can't afford to take it on. Now you'll know that's in marked contrast to the boom years when many overstretched themselves.

Before you can borrow money, lenders will want to know about your phone bill, your gym subscription, your holiday, even your weekly grocery shop. The scrutiny of your private life also extends to any childcare costs, any plans you might have to have children in the future which is quite personal and 
there's a question in there about what you spend on haircuts.

Applying for a mortgage will often involve a face to face interview and much more paperwork. There's also a stress test, and this is where lenders will look at our ability to keep up payments if interest rates rise. This is a far cry from what it was like trying to get a mortgage ten years ago.

Speaking to BBC radio, Paul Broadhead, Head of Mortgage Policy at the Building Societies Association said: "We have seen changes and for the last few years lenders have been checking income and expenditure, but it has varied from lender to lender. What these new rules say is actually what lenders have to check is a number of things. First of all, what is your committed expenditure - absolutely sensible, how much do you spend on your household bills, how much do you spend on commuting to work - it's those types of things that a lender will need to assess."

Paul Broadhead mentions there are four major changes: "first of all most people will now have to get full mortgage advice and that wasn't always the case. I think that's important to get across and that advice is part of the reason it might now take longer. The stress test is that we all know we are at historic low interest rates, interest rates are going to rise, can you afford that mortgage still if that rises over the next five years? When you come in and say you have a joint income of £37,000 then the lender will need to check that indeed you do earn that through your payslips and bank statements."

Ruth Jackson, a personal finance expert and journalist who is trying to buy a house commented: "It's overwhelming at first obviously and unfortunately for me I've been dealing with it for months now, but I think in general it's a good thing and it's going to really help because since the housing crash happened a lot of the banks have changed the way they've done things, affordability has come into it but it has varied vastly from bank to bank and it's been more confusing for it. Now that they're all going to be on the same page it should hopefully over time make things simpler than they have been in some ways."

It has been suggested that is may be possible to massage your expenditure. So if you're expecting to apply for a mortgage in six months it might be sensible to cancel gym membership, not to have a posh haircut and to switch to cheap own brands and bring down your grocery shopping bill.

Ruth Jackson responds: "That's certainly the case. Now you need to start thinking months in advance 'I'm going to go for a mortgage application therefore I'm going to cut my expenditure'. For a lot of people if you're going to buy a house in six months time you're cutting your expenditure anyway because you're saving.

Paul Broadhead from Building Societies Association says: "I think that's absolutely right, you need to prepare. Also the important thing to recognise is what the lender wants to check is what can you not cut back on, what do you have to spend each month to live, so basic quality of living costs. So whether you shop in a budget supermarket or a very expensive supermarket, that's recognised as people have different lifestyles, but if push came to shove, you could cut that back and still afford that mortgage so that's fine."

Not too long ago mortgage lenders were handing out mortgages like they were sweets with the likes Northern Rock offering a massive 125% self certified mortgage. Common sense now seems to have returned to the market. Paul Broadhead comments: "Well let's remember first of all, Northern Rock wasn't a building society of course and that world is very different. If you look at how building societies are underwritten, we talked in your two introductions about computer says no, computer says yes; we don't take a computer says no approach, it's looking at your individual circumstances and applying that common sense."

In terms of expediture under the new regime, personal finance expert Ruth Jackson points out that food shopping would be counted twice if you paid for it on a credit card. "I know it has happened to people. Say for example you are very organised and you have a cashback credit card where you put all your monthly spending on that credit card and you pay it off in full every month, you still have to class it. It will be split into two outgoing payments and get double counted."

This is the toughest housing market for a while and it seems Britons fall under two categories. There's the people who want to buy a house and can't and all the other people who live in their own houses already.

Ruth Jackson says: "It's a difficult situation because I think a lot of people either want to move or get on the housing ladder and they just can't at the moment for numerous reasons. It's not necessarily a bad thing that the banks are turning around and refusing to lend to people who can't afford to repay because we've seen what happens when they don't do that, but using my case as an example of just how lunatic it can be: I have a mortgage that I've paid for two years without fail, never missed a payment. I went to my mortgage lender and asked them to move that mortgage to a new property which would have halved my monthly payments. They said no because I couldn't afford the new lower payments but were happy for me to continue to pay the double monthly payment."

New rules which come into force today mean that anyone who wants to take out a mortgage will now have their whole lifestyle scrutinised. It's all part of a plan by the Financial Conduct Authority to stop lenders handing out mortgage debt to those of us who can't afford to take it on. Now you'll know that's in marked contrast to the boom years when many overstretched themselves.

Before you can borrow money, lenders will want to know about your phone bill, your gym subscription, your holiday, even your weekly grocery shop. The scrutiny of your private life also extends to any childcare costs, any plans you might have to have children in the future which is quite personal and 
there's a question in there about what you spend on haircuts.

Applying for a mortgage will often involve a face to face interview and much more paperwork. There's also a stress test, and this is where lenders will look at our ability to keep up payments if interest rates rise. This is a far cry from what it was like trying to get a mortgage ten years ago.

Speaking to BBC radio, Paul Broadhead, Head of Mortgage Policy at the Building Societies Association said: "We have seen changes and for the last few years lenders have been checking income and expenditure, but it has varied from lender to lender. What these new rules say is actually what lenders have to check is a number of things. First of all, what is your committed expenditure - absolutely sensible, how much do you spend on your household bills, how much do you spend on commuting to work - it's those types of things that a lender will need to assess."

Paul Broadhead mentions there are four major changes: "first of all most people will now have to get full mortgage advice and that wasn't always the case. I think that's important to get across and that advice is part of the reason it might now take longer. The stress test is that we all know we are at historic low interest rates, interest rates are going to rise, can you afford that mortgage still if that rises over the next five years? When you come in and say you have a joint income of £37,000 then the lender will need to check that indeed you do earn that through your payslips and bank statements."

Ruth Jackson, a personal finance expert and journalist who is trying to buy a house commented: "It's overwhelming at first obviously and unfortunately for me I've been dealing with it for months now, but I think in general it's a good thing and it's going to really help because since the housing crash happened a lot of the banks have changed the way they've done things, affordability has come into it but it has varied vastly from bank to bank and it's been more confusing for it. Now that they're all going to be on the same page it should hopefully over time make things simpler than they have been in some ways."

It has been suggested that is may be possible to massage your expenditure. So if you're expecting to apply for a mortgage in six months it might be sensible to cancel gym membership, not to have a posh haircut and to switch to cheap own brands and bring down your grocery shopping bill.

Ruth Jackson responds: "That's certainly the case. Now you need to start thinking months in advance 'I'm going to go for a mortgage application therefore I'm going to cut my expenditure'. For a lot of people if you're going to buy a house in six months time you're cutting your expenditure anyway because you're saving.

Paul Broadhead from Building Societies Association says: "I think that's absolutely right, you need to prepare. Also the important thing to recognise is what the lender wants to check is what can you not cut back on, what do you have to spend each month to live, so basic quality of living costs. So whether you shop in a budget supermarket or a very expensive supermarket, that's recognised as people have different lifestyles, but if push came to shove, you could cut that back and still afford that mortgage so that's fine."

Not too long ago mortgage lenders were handing out mortgages like they were sweets with the likes Northern Rock offering a massive 125% self certified mortgage. Common sense now seems to have returned to the market. Paul Broadhead comments: "Well let's remember first of all, Northern Rock wasn't a building society of course and that world is very different. If you look at how building societies are underwritten, we talked in your two introductions about computer says no, computer says yes; we don't take a computer says no approach, it's looking at your individual circumstances and applying that common sense."

In terms of expediture under the new regime, personal finance expert Ruth Jackson points out that food shopping would be counted twice if you paid for it on a credit card. "I know it has happened to people. Say for example you are very organised and you have a cashback credit card where you put all your monthly spending on that credit card and you pay it off in full every month, you still have to class it. It will be split into two outgoing payments and get double counted."

This is the toughest housing market for a while and it seems Britons fall under two categories. There's the people who want to buy a house and can't and all the other people who live in their own houses already.

Ruth Jackson says: "It's a difficult situation because I think a lot of people either want to move or get on the housing ladder and they just can't at the moment for numerous reasons. It's not necessarily a bad thing that the banks are turning around and refusing to lend to people who can't afford to repay because we've seen what happens when they don't do that, but using my case as an example of just how lunatic it can be: I have a mortgage that I've paid for two years without fail, never missed a payment. I went to my mortgage lender and asked them to move that mortgage to a new property which would have halved my monthly payments. They said no because I couldn't afford the new lower payments but were happy for me to continue to pay the double monthly payment."