Banks will now have to pay much more attention to whether people can afford to repay their mortgages. Under new regulations that came into force last Saturday, lenders are required to ask detailed questions about borrowers’ income and spending.
Banks also have to look at whether applicants are able to cope with a potential rise in interest rates. While this will make it harder to get mortgages, there are a number of common sense tips that you can follow to improve your chances of getting approved.
Getting your spending under control is always a good idea. Banks will be looking at spending over a longer period (typically around six months). This means that now is a great time to take a detailed look at your expenditure, both in terms of one-off purchases and regular commitments. You should at least make sure that your outgoings don’t exceed your income; a monthly surplus would be even better.
Things that could prompt particular concern include obvious red flags, such as online gambling and large leisure spending, but even regular pension contributions are considered a negative. So you might want to think about temporarily reducing them, using the money to pay down any debts or loans that you may have (another red flag).
Since childcare costs are considered a regular commitment, young couples may want to investigate whether their parents can help share the burden. After-school clubs may be another possibility for those with school-age children.
Lenders will be checking your credit history much more closely, so make sure it is accurate and up to date. Requesting a credit report is a cheap and simple process (and you can get a one-off report cheaply rather than paying a monthly subscription for unlimited access). This is worth doing: credit rating agencies do make mistakes, and lenders rely heavily on their judgement.
You should also ensure you are on the electoral roll, since not being registered is negative for your credit score and makes it hard for the credit card companies to keep track of you.
Some lenders are going far beyond the minimum regulatory requirements, while others are adopting a slightly more relaxed attitude. This means that it is worth shopping around to see if you can find a better deal, especially if you feel that you have been unfairly penalised.
To make this task easier, many lenders provide a calculator, which gives an idea of how much you can expect from them. However, these are only meant to provide ballpark figures, since an individual’s situation will depend on a number of different criteria.