How to Tackle the New Mortgage Affordability Tests
It has never been so difficult to get a mortgage after the
introduction of the new Mortgage Affordability Tests by Mortgage Lenders in
response to the introduction by the Financial Conduct Authority (FCA)’s
introduction of new regulations under the ‘Mortgage Market Review’.
To many potential mortgage applicants, the future seems
bleak with the prospect of many giving up hope when faced with what appears to
be an impossible obstacle.
Not all hope is lost and it is possible for most applicants
to step up to the mark and pass the new mortgage affordability tests with
careful forward planning and a little preparation. Here are a few tips:
Get professional independent
advice
Each application for a mortgage is recorded on your credit
record and if more than one application shows up, especially close to the date
of your current application it will count against you when you are assessed for
a mortgage. This means that when making your application you need to try and
get it right first time.
Getting the professional advice of a mortgage broker before
making an application will help you get your application right first time. An
experience mortgage broker will know what the lender is looking for and what
deals you are likely to succeed in getting from a lender. They will also know
which lenders are more likely to accept you and your circumstances and this can
change from month to month; the application of the affordability criteria is
not uniform across all lenders, each have their own approach - so you really do
need to have the advice of someone who has knowledge of the current mortgage
market.
Often a mortgage broker will have a relationship with certain
lenders and your application may benefit from their credibility with a lender
who may otherwise reject your application.
A mortgage broker can give you an objective view of your
chances of succeeding in your application for a mortgage and can give you
guidance on what you need to do to change your circumstances to suit the
affordability criteria.
Be organized
Make sure that you keep all your receipts and statements (bank,
credit card, utility bills) in good order. Lenders typically want to see at least
3-6 months’ worth of statements – twelve months is ideal. Receipts are evidence
to back up your account of your expenditure (for example: do you keep your
supermarket receipt for your weekly food shop?) The more evidence that you have
to hand the better.
Clear your debts
The amount that you owe on existing debts such as credit
card and loans are a major consideration for lenders when considering your
suitability for a mortgage. Paying of these debts will take them out of the
equation.
Improve your
financial track record
Make sure that you always make credit repayments and pay your
bills absolutely on time. One late payment showing on your track record can
mean that you will not be able to get a mortgage. Generally, a lender will want to look at your
financial track record going back at least three months and often as far back
as six months. They are looking for consistency and reliability.
Change your spending
habits
No we do not mean live like a monk! Look at what you are spending carefully – do
you need to go out clubbing more than once a week? Do you need to buy top of the range fashion
shoes every month?
Look at the grocery shop, is there anything you can cut back
on (cakes, chocolates, alcohol for example?) do you need to buy the top brands? Utility bills, would it pay you to swap
providers? Is it cheaper to take your
own lunch to work rather than buy out every lunch time? Travel costs, do you
need that three litre BMW? Do you need to take the car at all? Do you need to
go on that expensive holiday this year?
Yes we all like our luxuries but as you get older the less
easy it is to get a mortgage as the repayment terms are often based on the
years you have left to retirement. Forsaking
a few luxuries for a year may mean the difference between getting on the
housing ladder or not.
Future Plans
Lenders will ask what your future plans are – do you intend
to start a family or go self- employed?
We all have dreams of what we would like to do and often muse on what we may do but think
very carefully what you say, you are not obliged to tell the lender your future
plans and if they are not a concrete possibility ‘set in stone’ they may wreck your chances of getting
mortgage. So if you are not actively
working towards starting your own business or trying for a family it is better
not to say anything that may give them the impression that you may well be.
Saving habits
The advice on saving habits can be contradictory. If you
have no savings you do not have a buffer for when things go wrong and you may
not be considered for a mortgage. If you tuck a large percentage of your income
away into fixed inaccessible savings plan you put your outgoings up, again
another no, no. The answer is in the middle and again, the further ahead you
plan your savings the better – the key words are ‘consistency and reliability’.
If you are already committed to large monthly payments on
savings and/or pensions consider lowering the payments or taking time out from them,
if possible but check the consequences for the outcome of that pension or
savings vehicle first before making any decisions.
Check your credit
score
Get a copy of the information that credit reference agencies
such as Experian have on you. This is the information that the Lender will use
when considering your suitability for a mortgage. Make sure it is accurate;
correct any mistakes that may be on your credit record.
Look at the information subjectively and try to analyse
which factors are pulling your credit score down and what can you do to
increase your credit record, for example late payments to creditors will show
up and will pull your credit record down, can you make sure that payments are
made on time from now on? Remember the lender will look for a reliable and
consistent record of payment going back at least six months, twelve months
record of consistent, reliable, repayments will be even better!
Make sure that you
have a credit track record
If you have never borrowed money you will stand less of a
chance of being considered than someone who has borrowed money, as there will
be no record of how you manage such financial commitments for the lenders to
base their judgement on. This is a tricky area going out and borrowing too much
can also count against you as can borrowing too little. Borrowing money and
then paying it off very quickly can count against you in two ways, there is a
much shorter track record of managing the financial commitment and the lender
may decide that they will not be able to make enough profit through interest payments
on your mortgage. The trick is to borrow an easily manageable amount and pay it
off over a set period, on time and in a consistent manner.
Use the online tools
Most lenders now have affordability calculators on their
websites which you can use to check whether or not you are likely to qualify
for a mortgage with them.
These are invaluable planning tools as they not only let you
know if you would currently be eligible for a mortgage, but you can also use them to see how a change in
your spending and lifestyle habits are
likely to affect your chances of
getting a mortgage.
