First-Time-Buyers

You’re not alone. 31% of people planning to buy a property within the next two years are unaware that mortgage rules were overhauled last April*. So what essentially are those rules? Borrowers can only obtain a residential mortgage if they a) can afford it and b) it suits their needs and circumstances. But what does that mean in practice? Income checks with payslips required if employed, or tax returns, accounts and a business plan/projected earnings if you’re self-employed. Documentation of other income such as shares, bonuses, a pension and now even overtime payments can be taken into account.

Doesn’t sound much different to pre April 2014? You’re right, but what is different is the drilling down into affordability if circumstances and needs were to to change ie. Part b). Which is why household expenditure is now looked at in 3 ways:
1. Essential Expenditure; things you can’t do without. The obvious: food, gas, electric, water, laundry costs, essential travel to work/school, council tax, household insurance, rent, phone bill etc.
2. Basic Living Costs: otherwise known as the ‘Occasional expenses’. Clothes, household goods, personal goods ie. Toiletries, basic leisure costs, TV licence, childcare are those included in this category
3. Repayments and Other Commitments: those regular payments that you know you will have to make albeit begrudgingly in some cases. Credit cards, loans or even child maintenance.
This is essentially the bare minimum that a lender will require but it will differ lender to lender. However, more critical to understand by a lender, will be whether your income is likely to go up or down or if your outgoings are likely to go up, for example if you have a baby on the way. Children are not cheap afterall! Checking future affordability will also consider how interest rates are predicted to change over a minimum of 5 years and how this might affect your mortgage payments and ultimately whether you get a thumbs up or a thumbs down.
So when you decide to go out for that non-essential dinner with friends once a week, decide to pay your bills late that month or just keep on spending simply because ‘you can’, give it some thought, as this could affect your chance of getting that life changing thumbs up.

*’Mortgage rules leave two thirds in the dark’, Financial Reporter, 21st September 2015, http://www.financialreporter.co.uk/mortgages/mortgage-rules-leaves-two-thirds-in-the-dark.html