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Harder to get a mortgage now

Harder to get a mortgage now
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New rules that came into force at the end of April could make it harder to get a mortgage now. The changes have been brought in to prevent home owners taking on excessive loans and it means lenders will now look more closely at your finances.

Before the financial crisis, banks were less strict about how much they allowed home owners to borrow. As a result, many were left with repayments that they struggled to afford. In an attempt to prevent this happening again, especially if interest rates rise, lenders can now only provide an amount that customers can actually afford.

How will the new rules affect you?

Following these changes, banks won’t just base their decision on the information that you provide. They will also consider the affordability of the mortgage, both now and if interest rates go up. This will give them a better view of your financial circumstances and how you will meet the monthly repayments.

They will check the affordability of the mortgage by looking at your bank statements. This will show them exactly what money you have coming in and how it is being spent. Areas that might have been ignored in the past when assessing your suitability for a mortgage, such as gym and television subscriptions, will now be taken into account.

The banks will also perform a stress test on your financial situation. This is designed to see how you would afford the repayments if rates increase. They could use a rate of up to 7%, which will prevent people taking on too much debt based on the current low rate.

Interest-only mortgages will still be available to some customers, as long as they have a strict schedule for repaying the debt. Borrowers with a poor credit history may be able to secure a loan if their financial situation shows that they can afford the repayments.

One of the benefits of these changes is that customers should now receive better advice from lenders. All staff providing advice to customers will have to have received the right level of training and qualifications.

What to consider before applying

Harder to get a mortgage nowThese changes mean that it’s more important than before to think about your financial circumstances before you start the application process. There are ways in which you can make your application more successful or receive the loan you require.

The additional costs of having children can put a strain on finances and increase your monthly outgoings. Couples might be better placed to secure a mortgage before they start a family, rather than thinking about it at a later date.

There are other factors that wouldn’t have affected your eligibility before, such as child maintenance payments and school fees. Any existing debts will also reduce the amount you can borrow. If possible it would be a good idea to pay these off before you apply. Ongoing subscriptions, such as gym membership and television or film services, will also be scrutinised.

In order to help your mortgage application, you should look at your financial situation at least three months before. Stop any direct debits that are not necessary and don’t buy anything extravagant. This will help to show a lender that you manage your money correctly and can afford the additional mortgage costs.

These changes have been implemented to stop borrowers taking on more than they can afford. By managing your finances carefully before you make an application, it could make a difference to the amount you can borrow.

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About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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