Over the last year the regulator has introduced stringent affordability rules on mortgage lending. These check all of your incomings and outgoings to see if you can repay not just at today’s rate but at rates of 6% or 7%. The laudable aim is to try and robustly protect you from overcommitting in the event of an interest rate rise.
It’s caused some friction: some are struggling to get deals, others can no longer borrow as much as they want. However, in general I think it’s a sensible move, with one rather large potential hole – and having raised this in passing to concerned senior representatives of the FCA , I told them I’d bash out a blog to see if I could put some more meat on the bones.
So having told you I’m worried there is a problem, let me explain it…
Have affordability rules put the kaibosh on your remortgage?
For those who already have mortgages, right now it is crunch time. Rates for new deals are almost at an all-time low, yet a rise in the UK base rate is getting closer, with most now predicting this will happen in mid to late 2015. So many people are sensibly looking to cut the costs of their existing mortgage deal and lock in a cheap rate now before rates rise.
However, I’ve heard from a couple of people that they’ve struggled to get remortgage deals due to affordability criteria. To clarify, when I say a remortgage, I’m not taking about borrowing more money, ONLY about borrowing what you currently owe, but on a new cheaper deal.
If affordability criteria are blocking people from doing that this is a serious problem. After all, it means you are on an expensive mortgage deal and are being told you can’t afford to move to a cheap mortgage deal – nonsense, you can certainly afford to pay less, more than you can afford to pay more. If that is happening, the system is broken.
There is room for lenders to have flexibility, the concern is they’re too scared to use it.
There is flexibility under the affordability rules in the system, but I’m hearing many lenders are struggling to try and incorporate the rules. We’ve seen an explosion in the length of time new mortgage interviews take, and banks’ systems are nowhere near as efficient as brokers’. Therefore you can see the attraction of just operating from a standardised rule book
So, have you tried to remortgage to a cheaper deal recently? If so, what was the attitude? Did you find it easy to get accepted? Or did the affordability criteria stop you and are you trapped in your existing deal? Please do let me know using the comments section at the end.
NB. If you’ve very low equity in your property and a very poor credit score, these have always been conditions that stop remortgaging – this is more specifically about affordability
- Free MSE printed Remortgage Guide
- How to boost your credit score to get a mortgage
- How affordability works – and what you can do to help yourself
- Mortgage Calculator