Alarming new research has found that two thirds of potential house buyers in Britain are unaware of new mortgage rules, which were introduced last year.
An investigation by mortgage lender and broker Ocean Finance indicates that some 31% of people who are looking to buy a property in the next two years are unaware of the changes. Another 35% said that they were aware of the changes, but said that they felt confused by the new regulations.[1]
Changes
In April 2014, the largest piece of mortgage regulation in a decade came into force. The changes, brought into force by the Financial Conduct Authority, means that lenders have to take further steps to make sure borrowers can only get a mortgage that they can realistically afford.
These new rules mean that borrowers will face greater scrutiny from lenders on features such as their incomes and their expenditure. This includes spending on things like childcare, holidays and entertainment.
However, 70% of people questioned said they did not know that lenders are permitted to look more closely at their spending. As a result, 25% said they have not made changes to their habits in order to qualify for a mortgage.[1]
Of those that are aware of the changes, over a fifth have cut their spending on treats, alongside stopping contributing to life insurance and pensions to keep a larger proportion of their income in their bank accounts.
Only 24% of aspiring home buyers questioned were aware that the new legislations test their ability to afford a mortgage should interest rates rise. Just 16% knew that the rules would also test their resolve should there be a change to their personal circumstances.[1]
Clarification
In order to ensure they were up to speed on the new regulations, over one-fifth of would-be buyers have sought advice from an independent mortgage broker. 30% looked online for their information on the rules, with 14% relying on friends and family for advice. Cause for concern came with the news that over one-third of potential buyers have not sought any advice on applying for a mortgage.[1]
Further data from the research shows that another third of buyers are that concerned about the more hardline mortgage rules that they expect to have to delay purchasing a property in order to save for a larger deposit.
‘More than a year after the new mortgage rules were introduced, potential buyers are still in a state of confusion about what they mean in reality,’ said Gareth Shilton, spokesperson for Ocean Finance. ‘Even more worrying is that a large chunk of people who are gearing up to apply for a home loan are not even aware that the mortgage rules have changed,’ he continued.[1]
He feels that, ‘as an industry, we need to do more to educate buyers and to guide them through a process which many people are finding understandably daunting. For anyone who plans to apply for a mortgage in the next, it’s key that their finances are in order, including checking their credit file and gathering all their paperwork early to show as evidence.’[1]
‘They would also be wise to cut-back on non-essential spending such as takeaways and subscriptions, and to ensure that bills are paid on time so they demonstrate that they can consistently live within their means and stick to a budget,’ he concluded.[1]
[1] http://www.propertywire.com/news/europe/uk-mortgage-change-research-2015092211009.html