If you want to get approved for a mortgage, one of the first hurdles you’ll need to clear is the affordability check. With the Mortgage Market Review coming into force this month, this could be about to get harder. Here’s a quick guide to some of the new rules, and 5 things you can do now that may improve your chances later in the year.
What is the Mortgage Market Review?
The review is a set of measures from the Financial Conduct Authority (FCA), designed to make sure that lenders only offer mortgages to people who can afford it. Although the rules are there to protect consumers and the prevention of risky and irresponsible lending, it is predicted that there will be a significant impact on prospective borrowers in terms of how long it takes to get a mortgage.
What will the changes mean for you?
Simply put, there are going to be more affordability checks to pass before you can get a mortgage:
- All monthly payments and household expenditure will be considered. This means you will need to be prepared to answer questions about your everyday income and outgoings
- There will be more paperwork, meaning your application is likely to take longer than it would have previously
- Lenders will have to carry out stress testing. This means that, as well as making sure you can afford the mortgage at its current interest rate, the lender will have to check whether they think you could cope if interest rates rose
- Around 50% of all borrowers will be obliged to speak to a qualified mortgage adviser
5 things you can do now:
Check your credit report
Often one of the first things a lender will do to assess your ability to afford a mortgage is check your credit history. Since these checks are usually done by a computer rather than a person, a mistake in your credit file could mean you are automatically declined. It’s a good idea to check that everything is accurate and up to date before you start applying, but be aware that checking your credit report too often can make you look less desirable to lenders.
Get on the electoral roll
As well as allowing you to vote in local and general elections, being on the electoral roll is one of the easiest ways for lenders to check your identity - and if you're not on it, your credit rating could be affected. Make sure you’re registered to vote at your current address. You can do this quickly by contacting your local council.
Clear your debts
It is usually a good idea to try and pay down any existing debts as much as you can before you apply for a mortgage, as lenders will want to see that you can pay off debts on time and in full each month. This means making sure any credit cards debts are paid every month, and avoiding going overdrawn.
It may sound counter-intuitive, but if you’ve never had any debts, this could work against you too. The computer that checks your credit file will look for evidence that you’ve paid off debts on time, and unfortunately if you’ve never had any debt it won’t be able to find this. Depending on your circumstances, you may want to consider taking out a credit card with a small limit - as long as you pay the balance off in full each month this could boost your credit rating.
Cut old ties
If you’ve ever had a joint bank account, loan or any type of financial product with an ex-partner, housemate, or anyone else, your credit rating could still be tied to theirs. A recent survey by Experian found that almost a fifth of us have had our credit affected by still being joined to that of a former partner. To remove any unwelcome guests from your credit file you will need a note of financial disassociation, which you can obtain through the company you used to check your credit rating, such as Experian.
Avoid changing jobs
From time to time your circumstances will change in ways that are beyond your control. However, in the months before you apply for a mortgage, it’s important to try and avoid big lifestyle changes as much as you can. Lenders will usually want to see that you’ve been in the same job for a significant amount of time, as evidence that you have a steady and reliable income.
Getting a mortgage is a marathon, not a sprint - but follow these steps and you might just be able to give yourself a head start.