How to Tackle the New Mortgage Affordability Tests

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.