Ten years ago, the housing market collapsed and many homebuyers fell behind on their mortgage payments, prompting a global financial disaster. Recovery has been steady, but slow, so it’s no wonder lenders are extremely careful about who they award loans and mortgages to nowadays. This situation resulted in a change in the way banks do business so you may find it incredibly difficult to secure a mortgage.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
What has changed?
In June 2017, the Bank of England (BoE) released the Financial Stability Report which asserted that mortgage debt has always been a threat to fiscal reliability. In response, the BoE endorsed a new affordability stress test to ensure that a borrower could afford a mortgage after the initial 2, 5, or 10 year introductory period.
This is a change from how banks assessed customers in the past. Previously they simply looked at your income and multiplied it by up to five times to work out your borrowing limit.
Now, lenders evaluate how much you can borrow based on your income, your outgoings, your credit score, and the loan-to-value amount (how much you want to borrow in relation to the property’s value).
Not only that, but the newly introduced stress test requires lenders to gauge a borrower’s affordability against the Standard Variable Rate (SVR) your loan will move onto after you initial period, plus a further 3%.
Why does this matter?
The average SVR (as of Feb 18) is 4.29%. As this is just an average, you could be facing a SVR as high as 4.74% depending on your lender. According to the new affordability stress test, this means you need to prove you could still pay your mortgage at a rate of 7.74%.
This of course is based off the BoE’s current base rate. Since continued rate hikes are on the horizon, your lender will surely pass the costs on to you and you’ll be facing an even higher SVR.
Nationwide’s latest House Price Index Report states that in December 2017, the mortgage approval levels were at the lowest they’ve seen for three years. This may be down to the base rate rise the previous month, but it’s highly probable the introduction stress test played a major part in mortgage approval declines as well.
What can you do?
Allow more time – If you are planning to buy property or remortgage a home this year, we advise allowing for more time to complete the process than you might have originally estimated.
Seek independent help – The best guidance we can give is to seek out a professional mortgage advisor to guide you throughout the process who will ensure you find the provider and mortgage that’s right for you.
Don’t waste unnecessary time – A helping hand is especially worthwhile for busy doctors and dentists so you don’t need to take time away from your practice.
Look further than your bank – Seeking help from your bank is an option, but they will only be able to offer you products they provide, which doesn’t give you a full choice of all the different deals and rates.
Need help to secure your mortgage?
Chris can help find the most competitive rate of interest for you and take care of the application process so you stand the greatest chance of success. Contact our team today for an informal chat.
Tel: 01403 780 770
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