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Homebuyers' spending faces scrutiny as new mortgage regime comes into force Homebuyers' spending faces scrutiny as new mortgage regime comes into force
(4 days later)
Homebuyers and people looking to re-mortgage will face tougher checks before being offered a loan under new rules coming into force on Saturday, which are designed to prevent a return to the reckless lending seen before the credit crisis.Homebuyers and people looking to re-mortgage will face tougher checks before being offered a loan under new rules coming into force on Saturday, which are designed to prevent a return to the reckless lending seen before the credit crisis.
Mortgage applicants' expenditure on childcare, travel and even takeaways will be taken into account by lenders and will reduce the amount they are allowed to borrow. Banks and building societies will also be expected to check that borrowers can still afford repayments if interest rates rise from the current historic lows.Mortgage applicants' expenditure on childcare, travel and even takeaways will be taken into account by lenders and will reduce the amount they are allowed to borrow. Banks and building societies will also be expected to check that borrowers can still afford repayments if interest rates rise from the current historic lows.
Experts said the changes could stall the burgeoning housing market and result in some customers being turned down for loans they would have previously been allowed. They also predicted growth in long-term fixed-rate mortgages as borrowers sought to avoid the new stress-tests.Experts said the changes could stall the burgeoning housing market and result in some customers being turned down for loans they would have previously been allowed. They also predicted growth in long-term fixed-rate mortgages as borrowers sought to avoid the new stress-tests.
The changes have been introduced by the Financial Conduct Authority, following the mortgage market review (MMR) which it launched after the financial crisis. The regulator said the rules – which ban self-certification mortgages and make interest-only loans harder to get – "put common sense at the heart of the mortgage market" and gave consumers more certainty that they could keep up repayments now and in the future.The changes have been introduced by the Financial Conduct Authority, following the mortgage market review (MMR) which it launched after the financial crisis. The regulator said the rules – which ban self-certification mortgages and make interest-only loans harder to get – "put common sense at the heart of the mortgage market" and gave consumers more certainty that they could keep up repayments now and in the future.
Martin Wheatley, FCA chief executive, said: "Since the crisis lenders have been taking a far more sensible approach to mortgage lending, and the MMR is designed to ensure that this common-sense approach continues. We do not want to see mortgage lending return to the practices of the past where people were taking out mortgages they simply couldn't afford."Martin Wheatley, FCA chief executive, said: "Since the crisis lenders have been taking a far more sensible approach to mortgage lending, and the MMR is designed to ensure that this common-sense approach continues. We do not want to see mortgage lending return to the practices of the past where people were taking out mortgages they simply couldn't afford."
George Osborne tweeted: "Changes to the mortgage market will help stop irresponsible lending. Part of plan to build resilient economy & avoid mistakes of past."George Osborne tweeted: "Changes to the mortgage market will help stop irresponsible lending. Part of plan to build resilient economy & avoid mistakes of past."
In practice, lenders look set to take different approaches to how they work out affordability, but some have prepared lengthy questionnaires asking borrowers for details including the amount spent on dry-cleaning and pets.In practice, lenders look set to take different approaches to how they work out affordability, but some have prepared lengthy questionnaires asking borrowers for details including the amount spent on dry-cleaning and pets.
Anyone who was given an agreement in principle on a loan under the old rules, or was offered a mortgage and now wants to make a change – perhaps borrowing more – will have to start the application process from scratch.Anyone who was given an agreement in principle on a loan under the old rules, or was offered a mortgage and now wants to make a change – perhaps borrowing more – will have to start the application process from scratch.
The property group LSL said it had already seen a reduction in remortgage borrowing as lenders tightened their criteria. The conveyancing firm LMS said it had already seen a reduction in remortgage borrowing as lenders tightened their criteria.
Paul Broadhead, head of mortgage policy at the Building Societies Association, said it was vital that the new regime did not dent consumer confidence or sentiment in the housing market.Paul Broadhead, head of mortgage policy at the Building Societies Association, said it was vital that the new regime did not dent consumer confidence or sentiment in the housing market.
"What will be important, particularly in the early days of the new regime, is that the FCA also takes a commonsense approach to supervision, to ensure that lenders have confidence to continue lending to all creditworthy borrowers," he said."What will be important, particularly in the early days of the new regime, is that the FCA also takes a commonsense approach to supervision, to ensure that lenders have confidence to continue lending to all creditworthy borrowers," he said.
"We do not believe the majority of borrowers will have an issue, despite the horror stories that may appear in the coming weeks.""We do not believe the majority of borrowers will have an issue, despite the horror stories that may appear in the coming weeks."
The new rules will not affect mortgages used to buy rental properties. The FCA has warned that it will keep a close eye on the sector to ensure buy-to-let deals are not used by homebuyers trying to get around the stricter checks.The new rules will not affect mortgages used to buy rental properties. The FCA has warned that it will keep a close eye on the sector to ensure buy-to-let deals are not used by homebuyers trying to get around the stricter checks.
• This article was amended on 29 April 2014 to correct the source of remortgaging data.