This month sees a huge change in the mortgage market. On 26th April 2014 the Mortgage Market Review will bring in changes that will have a bearing on many people looking to buy their first or subsequent home.
News of these measures has been reported for some time and there has been much speculation over how they will impact the market. We will shortly move past all this speculation and see exactly how the new rules will affect the number of mortgages handed out to those who want them.
An end to high risk lending
The idea behind these new rules is a sound one. The main reason for the financial collapse in 2008 was the often lax borrowing that went on in the housing market. Some lenders were happy to lend significant amounts of cash in the form of mortgages to people who were overstretching themselves to pay for them from day one. 100% mortgages were also much more common then. Clearly no one believed the sky would ever fall in.
Of course it was not all black and white. Some people were able to get riskier mortgages that enabled them to step onto the housing ladder for the first time. They worked hard to pay that mortgage every month and ended up in a much better and financially stronger position than they would otherwise have been able to achieve.
This was not the case all the time though. Many people were unable to keep up with the repayments on mortgages they could never afford. This led into the 2008 crash from which many people are still recovering.
How will the Mortgage Market Review help?
While some people are nervous of losing their chance to get a mortgage under the new review scheme, others are welcoming of a safer and more responsible marketplace. The high risk lending that triggered the financial crisis should in theory no longer be possible. It will certainly no longer be possible to get a self certified mortgage where you can list your income and not have it checked or confirmed.
Indeed, many people will now have to accept a far higher level of scrutiny when it comes to their personal finances. Bills, outgoings and affordability will all be looked at. While such checks may not preclude someone from being accepted for a mortgage, they may limit the size of the loan they are offered. This alone could determine how realistic a move into a first property might be.
Many have warned the housing market could suffer as a result of these new rules. However they are necessary in order to protect not just the economy but those who are looking to buy their first or subsequent homes. It remains to be seen how far reaching the rules will be in reality, and whether some lenders will go into too much depth with regard to the income and expenditure history of the person applying for a mortgage.