The tough new rules are part of the City regulator’s Mortgage Market Review, which was designed to ensure borrowers are issued with mortgages they can afford. The Financial Conduct Authority is concerned that lenders were making it too easy to get a mortgage — and aid short-term profits — before the financial crisis. To ensure safer lending in future, from April 26 mortgage providers will be made fully responsible for assessing whether customers can afford the loan in the long term.
Lenders will be expected to rigorously test potential mortgage customers ability to afford their mortgage products by ascertaining their personal spending habits on luxury items and current lifestyle.
Aaron Strutt, of brokerage Trinity Financial, said anyone planning to take out a mortgage should start preparing at least three to six months in advance by limiting spending on luxury items and holidays and paying off credit card debts. Borrowers planning to have children in the near future, he said, should consider securing a mortgage first, before costs such as loss of income and childcare can be assessed by lenders.
Some economists warn the tests could force the average first-time buyer to double a deposit from 20pc to 40pc to qualify for a mortgage, which will put home ownership out of reach for many. This would also affect those remortgaging or moving home and transferring a loan to a new property. These borrowers will have to reapply for their existing mortgage and could find they no longer qualify.
However some feel that the impact of the new Affordability rules will not be as severe as some think:
Research by the Intermediary Mortgage Lenders Association, published last week, showed the number of lenders who are confident the stress tests will not significantly affect borrower numbers has fallen from 73pc in July to just 43pc last month.
Clearly is it likely to be a time of transition and some uncertainty but Mr Pointon, Property economist at Capital Economicss said he doubts that the outcome will be quite so severe, as lenders can choose to use a different measure for stress testing.
Whilst others feel that it could affect the recovery of the Financial Markets, Mr Winter Chief Executive of Ipswich Mutual said some major lenders will try to reduce the number of loans issued between April and July, as they “aren’t ready” for the new rules.
This could also restrict borrowers’ access to mortgage finance. He said: “The easiest way for them to do that is to push up rates to uncompetitive levels. If a number of lenders take that action people will struggle to get a mortgage and this could kill the recovery stone dead.”
Clearly only time will tell of the impact of the new regulations.