Tougher rules to come on Mortgages

July 26, 2010

It’s just too easy to get a mortgage nowadays. All you need is a 10% or 15% deposit, and a brilliantly well-paying job, and you can borrow all you need – as long as you don’t need very much. For the average couple, unless you have £25,000 in the bank, you can say to buying your first home.

There were fewer than 50,000 mortgages approved in May. Everyone else was simply resigned to renting until they are old and grey. But the FSA disagrees, it wants to make it even harder to get a mortgage – putting even more hurdles in he way of hopeful buyers.

The proposal is to run affordability checks on every borrower, in an effort to ensure ‘responsible lending’.

All mortgages should be affordable, and it’s in everyone’s best interests to make sure that the buyer doesn’t suddenly find themselves running up arrears because they failed to budget carefully enough.

If you have an impaired credit history – and after a decade of irresponsible lending followed by a period of massive tightening, an increasing number of people do – then the affordability test will be even tougher, and require a buffer between your incomings and outgoings.

The second part of the proposals is to effectively outlaw self-certification mortgages and require proof of income from an independent source.

This is based on research that shows almost 50% of mortgages taken out in the last three years have been granted without proof of income.

If you have a normal job, the new rule shouldn’t make much difference to you. You just produce the pay slip as you always have. If, for any reason, your income is less reliable – if you are freelance or self-employed, or you work on commission, you’re in much more trouble. In effect you need to have this work for at last a couple of years before you can even think of getting a mortgage. Even then, it’s unlikely your first couple of years was massively profitable, so you can wave goodbye to a mortgage for the best part of half a decade.

If you work for yourself it’s amazing how poorly you are treated. They say freelance work is less reliable than a job, you can get fired at a moment’s notice, but even in a normal job you only get one months notice. And if you get your work from a handful of employers, there’s an argument you’re more secure, because they’d all have to dump you together for your income to be as risky as a full time employee.

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