Mortgage Affordability

Bank of England rips up rules despite rate rises

Following its latest review of the mortgage market, the Bank of England (BoE) Financial Policy Committee has confirmed that it will withdraw its affordability test Recommendation. This will come into effect from 1 August 2022.

Introduced in 2014, the test specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage. The stress test means borrowers have had to prove they could still afford their mortgage repayments if their mortgage rate were to increase to 3% above their lender's standard variable rate.

Mortgage underwriting standards 

The other Recommendation, the loan to income (LTI) ‘flow limit’, which will not be withdrawn, limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5.

The Recommendations were introduced to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks.

Level of resilience 

The BoE is now ending these rules, announcing that an existing limit on mortgages with a high loan-to-income ratio and the Financial Conduct Authority’s other required affordability checks ‘ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way.’

The move is likely to fuel competition among lenders and removing the restriction may soften any price slump for homeowners. The change could also lessen the impact of lenders’ own decisions to approve mortgages more cautiously, giving support to the market as it enters a more challenging phase.

Want to find out how much you could borrow?

Whether you want to buy a first or new home, or remortgage your current property, we’ll help you find the right mortgage for your needs. To find out more, contact The Surrey Mortgage Broker– telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Mortgage Market Review

What happened to Boris’s plan?

Back in June, then Prime Minister, Boris Johnson announced in a speech some great plans to help British people get in the housing ladder. Unfortunately this has been somewhat overshadowed by his subsequent resignation and the new Conservative Party leadership challenge, with Liz Truss being announced as the new leader on 5th September.

I want to have a look at some of the ideas and see if they could be a reality or if it was just political spin:

Homeownership 

In his speech, the Prime Minister said: ‘The global rise in the cost of living is only making life harder for savers. So we want it to be easier to get a mortgage.’ He also confirmed his ambition to ‘unlock the opportunity of homeownership’ for more people through Right to Buy. 

Mr Johnson also announced he was committed to helping those in a position to buy to access the mortgage finance they need, ensuring people are incentivised to save for a deposit no matter their financial situation, and improving the supply of housing across the country.

‘I want us to deliver on the long-standing commitment, made by several governments, to extend the right to buy to housing associations.’ 

‘Over the coming months, we will work with the sector to bring forward a new Right to Buy scheme. It will work for tenants, giving millions more the chance to own their home. It will work for taxpayers, responsibly capped at a level that is fully paid for, affordable within our existing spending plans and with one-for-one replacement of each social housing property sold.

So the right to buy scheme has been around for a long time, originally introduced under Margaret Thatcher’s government. As part of this he said that for each house sold a new one would be built. A very bold claim and in my opinion pretty hard to do given we are years behind in keeping up with demand now. The scheme extension is to open up the option to buy for those renting from housing associations, this is around 2.5 million people. As yet we have seen no plans as to how this will work.

Mortgage market

‘So today I can announce a comprehensive review of the mortgage market. Reporting back this autumn, it will look at how we can give our nation of aspiring homeowners better access to low-deposit mortgages, and what our own mortgage industry can learn from counterparts around the world who have all kinds of alternative ways of offering finance, managing risk and unbolting the door to ownership,’ said the Prime Minister.

The lower deposit mortgages soundbite is interesting as these have been around for a while except that they all went when lockdown came in back in 2020. a handful of lenders have come back into the 95% mortgage market but it is not back where it was.

Housing shortages 

These measures are designed to help more people onto the property ladder and to address the issue of housing shortages in the UK. This comes after the proportion of 25 to 34-year-olds who own their own homes fell from 55% to 34% between 1996 and 2016[1].

The government is confident that these measures will make a significant difference to those looking to get on the property ladder for the first time, and will help to address the issue of housing affordability in the UK.

As ever it is a case of wait and see. Now that we have a new leader and new cabinet in place will they have the same priorities? With the cost of living ever increasing will Liz Truss focus on short term political gains or look long term?

Ready to discuss your mortgage options

Excited about starting the next big chapter in your life? If you are ready to discuss your mortgage options, we’re here to help – to find out more, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data: [1] https://ifs.org.uk/uploads/publications/bns/BN224.pdf

What is Mortgage Underwriting?

Mortgage Underwriting - What Actually Happens?

The mortgage underwriting process is a key part of the mortgage application process. It is when the lender assesses the applicant’s ability to repay the loan, and decides whether or not to approve the loan.

It can also vary depending on the lender. However, there are some general steps that are typically involved.

Affordability assessment

The first step is for the applicant to submit their mortgage application, including supporting documentation. The lender will then review the application and supporting documentation to assess the applicant’s financial situation.

Next, the lender will carry out an affordability assessment. This assesses whether or not the applicant can afford to make the monthly repayments on the loan. The assessment will take into account the applicant's income, outgoings and other financial commitments.

Applicant’s creditworthiness

Once the affordability assessment has been carried out, the lender will assess the applicant's creditworthiness. This is done by looking at the applicant’s credit history and any previous experiences with borrowing money.

Finally, the lender will make a decision on whether or not to approve the loan. If the loan is approved, the applicant will be asked to sign a mortgage offer document. This document sets out the terms and conditions of the loan agreement.

What do mortgage underwriters check?

There are many things the mortgage underwriter will be looking at and these will vary from lender to lender.

Guide to the most obvious things they’ll consider:

Your income and expenses

The lender will want to know you can afford the repayments on the mortgage, so they’ll do thorough checks on what money is regularly coming in (like your salary) and going out (fixed and discretionary).

Your liabilities

 As part of their affordability checks, they’ll also want to know about any debts you have – as paying these back may impact your ability to make mortgage repayments.

 Your age

With mortgage terms typically spanning over more than two decades, the underwriter will consider your age to check whether the term runs past your expected retirement age and that repayments will remain affordable well into the future.

Your credit score/report

In addition to affordability checks and any debts, your credit report will also show the lender if you’ve ever missed payments or defaulted on debts in the past. Having a good credit report is likely to make you appear less risky and more attractive to the mortgage lender.

Your personal circumstances

They may also consider personal circumstances that could impact your financial situation. For example, dependent children, your job stability and even future earning potential could all play a part.

The property you’re buying

The underwriter will also want to know about the home you’re looking to buy. While the property valuation report is separate to the underwriting itself, a review of it will form part of the underwriter’s decision-making process.

Whether you are new to this or an experienced homeowner it may benefit you to have a chat with someone. To discuss your mortgage options, contact The Surrey Mortgage Broker – telephone 01252 759233 – email info@thesurreymortgagebroker.co.uk.

Interest Rates Are Rising - What could it mean for your mortgage

RECENT YEARS have seen an extraordinary period of competitive and low interest rate mortgage deals but, even before the Bank of England’s (BoE) rate-setting Monetary Policy Committee began increasing interest rates last December, there were signs that the era of ultra-low mortgage rates was at an end.

For many people, rate rises will mean an increase in their outgoings at a time when incomes are already stretched.

It is therefore important to consider how a rise in interest rates might affect your ability to meet your mortgage payments.

CALCULATE IF YOU CAN AFFORD THE INCREASE. How you’ll be affected by an interest rate rise depends on what mortgage you’re on and when your deal comes to an end. But if your mortgage repayments are likely to go up, you need to calculate if you can afford the increase and consider your options.

Create a budget and see if there are any areas where you might be able to cut back. If the increases are likely to be in the future, then start building up a savings buffer so you’ll be able to afford your mortgage when repayments start increasing.

HOW WILL INTEREST RATE RISES AFFECT ME?
If you have a loan or mortgage that charges you a variable interest rate, you might find that the cost of your repayments go up.

Say you have a £130,000 mortgage that you want to pay off over 25 years. If the interest rate on the mortgage is 2.5%, the monthly repayment will be £583. But if the interest rate is 0.25% higher – the amount the Bank Rate was raised in March 2022 – the monthly repayment rises by £17 to £600.

If you’re on a fixed rate you won’t see any change until the end of your fixed period.

“For many people, rate rises will mean an increase in their outgoings at a time when incomes are already stretched.”

IMMEDIATE IMPACT ON YOUR MORTGAGE REPAYMENTS
If you have a variable rate tracker mortgage linked to the BoE base rate you are likely to see an immediate impact on your mortgage repayments when there is an interest rate rise. But if you’ve got some time left on your current deal, it can also be worth considering your options to switch. You might have to pay some fees, but if the savings are worth it you may want to consider this.

Those on a standard variable rate mortgage will probably see an increase in their rate in line with any interest rate rise. How much is decided by your lender, so this isn’t guaranteed. If you are unsure, check your mortgage terms and conditions in your original mortgage offer document.

People with fixed rate mortgages are likely to be affected once they reach the end of their current deal. If your current deal is coming to an end, if appropriate, consider switching to make sure you’re on the best rate.

SEE IF YOU ARE ELIGIBLE FOR A DIFFERENT TYPE OF MORTGAGE PRODUCT
If you are worried about how higher mortgage repayments could impact on your finances, speak to us to see if you are eligible for a different type of mortgage product, such as a fixed rate, which would give you some protection against further interest rate rises.

We can also make sure that you are on the best mortgage deal for your circumstances. If you have not reviewed your mortgage in the last few years, then now is a good time to do so. There are many deals available and you may be able to get a better rate by switching lenders.

Source data:

https://www.bankofengland.co.uk/ knowledgebank/why-are-interest- rates-in-the-uk-going-up

>> CONCERNED
ABOUT HOW HIGHER INTEREST RATES
COULD AFFECT YOU? <<
If you are concerned about how higher interest rates could affect your ability
to meet your mortgage payments, then please speak us. We can help you to find the right mortgage product for your needs and circumstances. To talk to us about your requirements, please contact The Surrey Mortgage Broker – telephone 01252 759233 – email Info@thesurreymortgagebroker.co.uk.