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1 May 2014: How will new mortgage rules affect borrowers?

!50 image Lenders will have to carry out more detailed checks as new mortgage rules come into force. Borrowers will be asked to provide more information about their income and spending when applying for home loans.

On the 26th of April 2014 the Financial Conduct Authority (FCA) introduced new mortgage rules, known as Mortgage Market Review (MMR) which will require that lenders perform tougher checks to potential homebuyers and remortgagors. This new set of rules is designed to eliminate poor or risky lending practices and to protect homeowners from borrowing more than they can afford. The question that arises is how the process will change and how would these changes affect borrowers.

The most significant change is that lenders will now be required to see evidence for the income of the potential homebuyer. However, they will also go through all spending in order to check affordability. Borrowing will depend on whether after regular monthly expenditure, rather than just income, borrowers would still be able to afford repayments. Moreover, lenders will also stress-test affordability to check whether their clients will have enough money to repay the mortgage should the interest rates rise. The new rules will not affect buy-to-let mortgages.

The MMR is likely to result in an increase of the number of people being turned down for a home loan, particularly families with children and remortgagors. Furthermore, checking the client’s financial circumstances in greater detail will make the whole application process longer and more invasive than before. Interviews with new customers could now take approximately 15 minutes longer, raising the length to 2-3 hours.

While these rules are new for lenders, mortgage brokers have been required to use these processes for years. This means that brokers will not only be quicker, but they will also compare deals across the entire market, instead of just talking about their own product. Moneyhelpline has partnered up with London & Country, the UK's leading fee free mortgage broker, to offer expert advice on mortgage deals.

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