Hoping to get a new mortgage? Then prepare for a three-hour interrogation
By Victoria Bischoff and Marc Shoffman for MailOnline 01:02 09 Apr 2014, updated 10:36 25 Apr 2014
Getting a mortgage used to be as easy as showing your lender a payslip and getting a home loan based on a multiple of your income.
But those so called good old days led to the financial crisis as banks such as Northern Rock suffered as borrowers defaulted on loans they couldn’t afford.
This has prompted a shake-up in the mortgage market, with stricter lending criteria and affordability assessments being introduced.
We reveal the tricks you need to know when applying for a mortgage.
In the spotlight: New rules mean that from April 26 all customers who apply directly to a bank or building society for a home loan must be given full financial advice
Homebuyers who want a mortgage may now have to endure interviews lasting up to three hours with bank staff
New rules mean that as of April 26 all customers who apply directly to a bank or building society for a home loan must be given full financial advice either from a bank adviser or mortgage broker.
It is part of a crackdown on irresponsible lending by City regulator the Financial Conduct Authority.
Under the new process, borrowers will have to attend a lengthy grilling at a branch or have an in-depth conversation conducted over the phone.
During this interrogation, applicants will be asked about their spending habits, including how much they lay out on essentials such as childcare, household bills, food, travel, entertainment and holidays.
This will be in addition to the credit checks and form-filling that mortgage customers already have to go through.
Nationwide and Santander have confirmed that potential borrowers could expect interviews to last two-and-a-half hours.
Lloyds Bank, Leeds BS, Halifax and Yorkshire BS say interviews will take about two hours, while at HSBC it is likely to last 90 minutes.
Barclays offers customers an hour-long interview slot, but says this can be shortened or lengthened as necessary.
All these banks and building societies stress that these are the average time interviews will last - more complicated applications will take longer.
Mortgage experts have confirmed they have already seen cases lasting three hours.
On top of this, the length of time it takes to have a loan approved from the moment you first apply is also likely to increase as bank staff come under strain from the new rules. Some lenders are already reporting delays of up to six weeks.
And this won’t just affect those applying for a loan for a house move or extra borrowing, but also those who simply want to get a new deal with their existing lender.
Andrew Montlake, director of mortgage broker Coreco, says: ‘In regions where demand is high we could see some lenders’ service start to creak.
‘A long wait for an appointment could mean buyers miss out on the home they want. We just have to hope lenders are ready and have enough qualified staff on hand to deal with the demand.’
Under the new rules, which
come after the Mortgage Market Review by the FCA, banks will have to ask for more detailed information from customers.
Income and expenses
Borrowers will have to declare any outstanding credit card and loan balances plus the amount they spend on insurance policies, ground rent or service charges, as well as pension contributions.
And they will have to be honest about any future plans to spend money; for example, if they are intending to take out a loan to buy a car, renovate the property or are planning to start a family.
The Money Advice Service has compiled a useful infographic which provides a checklist of the type of details you will have to provided.
Ask Ma: The Money Advice Service has provided a mortgage checklist to use when applying for a mortgage
The regulator is also asking banks to make a new calculation on borrowers to see if they can afford a rise in interest rates.
This stress test will ensure that all homeowners are able to meet the possibility of higher monthly repayments. Some may even split the interview into two meetings.
Staff will have to allocate three hours for a single interview and each will be able to conduct a maximum of three per day.
This is expected to be a boon for mortgage brokers, who can do all the paperwork for their customers and guide them through the process.
Paul Smee, director general of trade body the Council of Mortgage Lenders, said: ‘Certainly the extra time that customers will need to take out a mortgage or vary an existing home loan contract has the potential to cause a backlog - not to mention customer irritation from those who wanted a slicker banking service.’
To help speed up matters, customers need go to mortgage interviews with their paperwork.
Many lenders have free budget mortgage planners available online, which will take you through exactly what you need to bring with you and the sort of questions you’ll be asked.
Jeremy Duncombe, director of the Legal & General Mortgage Club, says applicants can boost their chances of getting a mortgage by being realistic about what they can afford and cleaning up their credit score.
He explains: ‘ With greater emphasis being placed on affordability it is crucial that any prospective borrower shows themselves to be as low risk as possible to a lender. Your credit score is one of the primary ways that a lender decides whether or not you are credit worthy. There can be any number of factors that may affect your credit score and making sure you stay on top of them is crucial.
‘Factors like making sure you are on the electoral roll, that you have a landline or mobile phone contract as opposed to pay as you go, that you show you pay your credit on time and that you don’t have any CCJ’s or any other hidden issues on your credit report will all have a huge impact. It may be worth checking your credit report for any issues via one of the main credit reference agencies.’
a" data-track-pos="static">Source: www.thisismoney.co.uk