Coventry estate agents have reviewed the financial advice they are giving to property buyers in light of recent changes to the way mortgage applications are processed. Lenders are taking a far more ‘risk-adverse’ approach to mortgage lending and this means more questions, longer application interviews and a deeper probing of finances.
Why are there changes to mortgage applications?
A turbulent economic period that saw banks exposed to ‘bad debt’ prompted a wide-reaching review of the financial sector. Mortgage loans taken out by buyers of property for sale in Coventry and the rest of the UK came under the microscope, with questions asked about lenders’ approach to applicants and the rate at which borrowers were defaulting on loans. The Financial Conduct Authority’s Mortgage Market Review identified the key problems and set out a new approach to lending to avoid such a crisis in the future.
Be prepared to reveal all outgoings
Buyers of houses and flats for sale in Coventry will have to lay bare they finances like never before. As well as proving income and showing evidence of a deposit, mortgage lenders will scrutinise all the borrower’s outgoings – from the big utility bills, loans and other debts through to the more mundane regular costs, like childcare, gym memberships and even social spending, like restaurant bills. Lenders will want the full picture when it comes to the likelihood of a house buyer being able to afford their mortgage payments.
Testing affordability now and in the future
Although it is a fantastic time to buy property for sale in Coventry with a mortgage as interest rates are so low, the Bank of England is constantly evaluating the housing market and many speculators predict an interest rate rise in 2015. Despite a belief that rates will climb slowly, lenders will apply a ‘worst case scenario’ when it comes borrowers and will ask them to prove how they could afford mortgage repayments should interest rates rise to 7%. This is known as a ‘stress test’ – putting a borrower’s finances theoretically under pressure to see if they could meet their mortgage commitments during times of financial hardship. Lenders may also ask borrowers about future plans that may impact on their finances – whether that’s starting or expanding a family, buying an investment property or retirement.
Being prepared pays off
Coventry estate agents are telling property buyers to prepare well in advance of their actual mortgage application – whether the interview is with the lender direct or with an independent financial advisor. Borrowers should have at least six months of bank statements and wage slips (or three years worth of SA302 forms for self-employed borrowers). It is worth listing all regular outgoings ahead of an interview, as well as obtaining in writing any scheduled pay rises and promised bonuses. Interviews may last between one and three hours, so applicants should set aside enough time to give the meeting their full attention.