With a home purchase via mortgage being the biggest debt we have stricter FCA rules will be introduced from 26th April 2014 to combat a repeat of the lending which was responsible for the property crash of 2007.
Pre late 2007 first time buyers were able to borrow as much as 125% of the property value leading no security margin for the lender if the market turned and they had to reclaim the property. The subsequent decline in the property market left many buyers in negative equity and those who were unfortunate enough to have a change in financial circumstances found themselves struggling to keep up with the mortgage payments.
The new rules will require mortgage brokers and lenders to ask the potential borrower more detailed questions concerning the income per month and a break down of exactly what this money is spent on! This detailed breakdown of expenditure will include all regular day to day costs such as haircuts, food, bills, gifts, cinema, concert tickets etc… There will now be a stress test of the borrowers ability to repay the loan if the BOE interest rates rose by upto 3%.
These are typical questions usually only asked of someone who is in financial difficulty wanting to enter into a debt management plan of some kind, which only highlights how serious the FCA is taking these new rules.
This will slow down the mortgage process further and cause some who would have previously been accepted for a mortgage to be offered a lower some or even rejected.
What are your thoughts on the new ruling?