A failure to understand new rules on mortgage affordability is preventing a growing number of people from moving home.
The Mortgage Market Review – which came into force in April last year – now means lenders are responsible for assessing whether borrowers can afford a home loan. This has led to them introducing new ways of verifying a customer’s income.
But 45% of people who planned to buy a property since the introduction of the MMR have failed to do so, according to new research commissioned by Experian.
A quarter claim the MMR has impacted their ability to buy a property, while a further 37% report that the changes have made them feel less in control of securing a mortgage.
In a previous study conducted by Experian in April 2014, just 44% of those surveyed were aware that the MMR would mean that lenders would be more careful about ensuring mortgage applicants could afford their repayments. But the message does not seem to have got through.
The latest insight report – The Mortgage Muddle: One Year After The MMR – reveals that of 1,500 respondents who bought or planned to buy a property in the last year…
- 62% were not aware that lenders may require bigger deposits. In fact, 23% thought they could apply for mortgages with smaller deposits than before;
- 37% didn’t recognise that lenders would now be more careful on whether they could afford repayments;
- 15% believe that lenders have now relaxed, not tightened, their lending criteria as a result of the MMR.
In addition, of those who were unable to buy in the last year…
- 13% do not know how much money they have left over at the end of the month;
- 18% don’t even know what monthly repayments they can afford;
- 14% did not have a big enough deposit for the property they wanted; and
- 12% were unable to secure the size of mortgage they needed.
Worryingly, 11% of those who were unsuccessful in securing a mortgage did not know why or haven’t asked their lender, leaving them at a significant disadvantage when it comes to improving their chances of being accepted in the future.
The research has prompted Experian to release a step-by-step Mortgage Application Guide. Property Division attended the launch at a breakfast meeting in London last week, where James Jones – head of consumer research at Experian – explained: “Navigating the mortgage market can be tricky for buyers.
“Taking simple steps like increasing your monthly credit card repayments, ensuring you’re registered on the Electoral Roll and not taking on additional borrowing can make a real difference to how lenders view your ability to afford and manage a mortgage. But it does take time to build a clear, consistent track record of positive money management.”
The pocket-sized 12-page guide includes five tips that could homebuyers prepare for a mortgage application.
- Know what you have to spend: The size of your deposit will often dictate how much you face in terms of interest rates and lender fees. Lenders will want to know whether you’ll you be able to afford repayments should interest rates go up, or if your circumstances change.
- Do your research: Use mortgage calculators and comparison websites or speak to a mortgage adviser to find out where the best deals are and what type of mortgage will suit your circumstances. Work out what you can afford to borrow and repay, both now and if rates rise by 1%, 2% or more.
- Look at how much you’re spending: Prepare now by building good habits like increasing the amount you save, clearing overdrafts and cutting back on discretionary spending to ensure you close out the month with even a small surplus.
- Check your credit report: As soon as you make the decision to buy a home, check your credit report with all three credit reference agencies. Ensure everything is accurate and reflects your current circumstances. Check that all of your open credit accounts are recorded and that any old accounts are marked as “settled”. Next, check the exact way your address and other personal details appear on your credit report. Small inaccuracies could see your application turned down. If you spot anything you believe to be inaccurate, contact the relevant credit reference agency and ask them to investigate the entry with the lender.
- Room for improvement: If your credit report has room for improvement, take steps now to get it into shape before making your mortgage application. There are a number of steps you can take, including paying off more than the minimum repayments on your accounts each month and making sure never to miss a repayment.