Applying for a mortgage is rarely a straightforward process. Your mortgage is likely to be the biggest financial commitment you’re ever going to make – with lots of decisions to make, forms to fill in and waits for lenders to respond.
In April 2014, the process was made even tougher with the introduction of new rules on mortgage affordability. In this video, financial journalist Melanie Wright helps us find out what the new mortgage affordability rules might mean to you.
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What do the new rules involve? Many of us grew up with the idea of ‘a multiple of your income’ – usually 3.5 times – and a good credit report being major factors in a successful mortgage application. The new rules take into account not only how much you are earning, but how much you are spending, and whether you actually have the money to make your monthly mortgage repayment.
If you’re living on an overdraft and have lots of regular payments – such as gym membership, childcare costs or expensive subscriptions– then it’s possible you may find a mortgage harder to get than someone who lives more frugally and puts money into savings regularly.
Lenders are also keen to know whether you’ll you be able to afford it should interest rates go up, which they are likely to do, or if your circumstances change .
While the mortgage rules have changed, keeping your credit report in order remains important if you are hoping to buy a property. Making sure your monthly repayments are made on time and keeping overall debt under control are likely to be key considerations for lenders.