Mortgage Affordability Rules Scrapped - What It Means
|1. What are mortgage affordability checks?
2. Benefits of the mortgage affordability rule change
3. What checks remain for borrowers?
4. Find the right mortgage deal with Purplebricks
Mortgage affordability checks scrapped: What does it mean for you?In 2022, mortgage lenders in the UK scrapped affordability checks for buyers looking to take out mortgages. This has been welcomed by many potential borrowers, as the affordability checks were an extra barrier to homeownership.
With the new changes in place, it could mean that it’s now much easier for you to get on the property ladder, however, it’s important to note that this change does not mean that there are still no necessary financial checks in place. To see how it could benefit you, find out everything you need to know about the changes below.
Introduced in 2008, the mortgage affordability checks were used as a way to prevent borrowers from taking on more than they could afford and protect banks from debt. You would need to show that you could afford a 3% increase in interest rates before you could be approved and the checks alongside this assessed your income, existing debt, and any other financial commitments you have.
However, as of August 2022, the Bank of England removed the affordability checks – positive news for borrowers who have been unable to get a mortgage because of the affordability tests.
The main benefit of removing the mortgage affordability check is that lenders will no longer have to check whether you can afford mortgage payments at a higher interest rate. First-time buyers, in particular, are likely to benefit most from the changes as they more commonly have smaller deposits and lower incomes.
The scrapping of affordability checks means that, as a borrower, you can take out a bigger mortgage than you previously could. This could be beneficial to those who may not have been able to pass an affordability check before, but it could also be a disadvantage to people who cannot manage a bigger mortgage payment.
It’s worth noting that the scrapping of affordability checks doesn’t mean that there are no strict checks in place, as lenders still need to assess whether you’re a suitable borrower. Lenders will still consider factors such as your income, outstanding debts, credit score and more when deciding to approve a mortgage.
The changes to affordability checks is good news for many people looking to take out a mortgage. However, as a potential borrower, you should still be aware of your own financial situation before taking on a mortgage. The most important thing to remember is to find a mortgage deal that you can afford and manage in the long term.
To be suitable to apply for a mortgage, here are some of the typical checks that you will need to undertake:
Credit check: Lenders use credit checks to assess your creditworthiness and determine your ability to repay the mortgage loan. When you apply for a mortgage, the lender will usually check your credit report to see if they have a history of repaying debts on time and in full.
Income check: An income check is typically required when applying for a mortgage. Lenders must ensure that you have a stable and sufficient income to afford the mortgage payments. They will usually ask for evidence of income, such as payslips, bank statements or tax returns.
Deposit check: Mortgage providers may also conduct a deposit check as part of the process. The lender will want to ensure that you have enough money saved for the deposit, which is usually a percentage of the property's purchase price. The deposit is typically required as a down payment towards the property, ranging from 5% to 20% or more.
Ultimately, applying for a mortgage might still seem daunting, but it can be a smooth process with the right preparation and advice. Before getting a mortgage, you should take time to research mortgage lenders and loan products, determine your budget and financial obligations, and seek professional advice if you need it. Taking the time to understand the process and prepare properly can help ensure that you get the best mortgage deal available.
To get a clearer idea of what you can borrow, use an online mortgage calculator.
Ready to find the right mortgage deal for you? Purplebricks can help provide everything you need. Whether you’re new to the housing market, remortgaging, or moving house, we’ll help you find a mortgage to suit your needs. Get in touch with our dedicated team of local experts who are ready to support you at every step of the process. Begin by booking your free house valuation today.