Applying for a Mortgage – What You Need to Know

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Changes to UK mortgage lending rules have come into force this April – and these will have implications for first time buyers hoping to get a foothold on the property ladder.

The new legislation entitled the Mortgage Market Review (MMR) requires all applicants to provide detailed evidence of their income, which includes up to six months’ worth of payslips, up to six months of bank statements, any overtime or bonus payments, and more.

Lenders want more than just reassurance that applicants can pay the loan back – they now need proof. The extra checks should help to avoid situations where homeowners have failed to calculate the total cost of either buying the home, or planning for running costs, resulting in them struggling to cope with looming repayments.

David Hollingworth, a mortgage broker working in London told The Guardian customers are going to have to be a lot more prepared, to be successful in their applications.

“Borrowers who have not been through the mortgage application process since the peak [in 2007] will be amazed at the changes.”

“A lot more paperwork has to be provided and there is a lot more scrutiny of documents such as bank statements and anything might need to be substantiated. This is supposed to go towards making a better, considered lending decision.”

“We are already starting to see customers using branches going through two or more interviews with branch staff. It can be more of a drawn-out process with papers flying backwards and forwards.”

The new rules came into force on Saturday (April 26) following the Bank of England’s increased focus on the mortgage market, with the introduction of the “Help to Buy Scheme” back in October last year.

Only time will tell whether or not these new regulations will help or hinder the health of the market, but with the average house price rising by 0.6% last month, the risk to lenders is becoming greater and greater.

The Money Advice Service (MAS) has put together a mortgage checklist, designed to help people be prepared and gather up any documents or information they may be asked to provide a lender. You can have a look it on the graphic below.

If you’re struggling to work out if you can afford a mortgage, MAS also has a mortgage calculator which you can try out online. The calculator takes into account the size of the loan, the interest rate as well as a host of other statistics and reveals the true cost of the mortgage. It’s a useful tool in working out your income against your monthly outgoings.

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