What tighter mortgage lending means to me

Pammy

I feel slightly concerned with the tighter lending criteria proposed today.

I completely agree that people should only be allowed what they can afford, that is responsible lending. But also part of that responsibility should be with the customer?

So what does this mean exactly to someone like myself?

I save money every month and I also spend a great deal of it as well. Why shouldnt I? I dont have a mortgage at the moment and I save a significant amount. Obviously when I have a mortgage my priorities would change.

From reading the telegraph is appears my spending habits would cast doubt over my worthyness for a mortgage.

Does this mean I have to live like a nun for the next 6 months.

matttr6

I'd be interested in replies to this to as I'm pretty close to applying for a mortgage.

seraphina

Pammy wrote: »

I feel slightly concerned with the tighter lending criteria proposed today.

I completely agree that people should only be allowed what they can afford, that is responsible lending. But also part of that responsibility should be with the customer?

So what does this mean exactly to someone like myself?

I save money every month and I also spend a great deal of it as well. Why shouldnt I? I dont have a mortgage at the moment and I save a significant amount. Obviously when I have a mortgage my priorities would change.

From reading the telegraph is appears my spending habits would cast doubt over my worthyness for a mortgage.

Does this mean I have to live like a nun for the next 6 months.

Not unreasonably, the banks would like to see evidence of responsible financial behaviour from people *before* they lend them hundreds of thousands of pounds. Otherwise the banks only have your word that your priorities will change when you have a mortgage.

If you can save significantly every month I don't really see what the problem is if you spend the rest of your cash on cars/shoes/going out/holidays etc. I don't think it's a bad thing that people have to demonstrate that they have the commitment to save for a year or two before they borrow huge sums of money. Too many people went for the buy now, pay later - and are now finding that buying was a cheap thrill. Fine if it's a frivolity, rather different when it's a house...

matttr6

Is there a need for it though?? I was under the impression lenders had already tightened up there criteria.

Surely putting down a 10% deposit is enough proof that you're able to save without delving too much into spending habits.

opinions4u

matttr6 wrote: »

Is there a need for it though?? I was under the impression lenders had already tightened up there criteria.

They have.

The problem is that they will loosen their criteria when the economy picks up unless something holds them in check.

While I don't agree with all the proposals, there is sense to some of them.

Surely putting down a 10% deposit is enough proof that you're able to save without delving too much into spending habits.

Or that you have generous parents? Or could it be proof that you took a £10k cash advance from an MBNA card a few days earlier? Simply having a deposit proves nothing.

Trollfever

A visit to the Bankruptcy Board on this site will reveal irresponsibility by both lenders and borrowers.

SirSaverOBE

Opinions4u - thank you for all of your posting on the forums, I have been following your advice keenly. I wondered if you could advise me. My wife and I are applying for mortgage tomorrow, having received an AIP, and I am really nervous about it in light of recent changes.

Brief background - I am applying as a sole applicant, but my wife will be named ont he mortgage. My salary is £32.5k including tax credits and child benefit, which the adviser has said is fine so far.

ON THE PLUS SIDE:

* In brief, HSBC calculators online came up with £146k that they would lend. I applied for an AIP of £141k and it was okay.

* We are FTBs! Hooray!

* Now - we have a £50k deposit, £28.4k of which has been meticulously saved every year using regular savers and then dropping the lump into an ISA. The rest was either inherited or gifted by parents.

* We have 74% LTV

* I now have zero debt on cards or loans, but my credit file still has some balances showing as they haven't been updated yet. The adviser said that this shouldn't matter as you can mitigate on the form. I am prepared to send documents to prove this is the case.

* My credit file is clean and I have an Experian score of 926.

* We can demonstrate that we still have enough money aside to do some work on the house and that we know what that work entails

* We just have enough available to cover 60 days if I lose my job

* The new house is 8 miles from work (covers your point about living near place of work)


ON THE DOWN SIDE

* As mentioned, credit file isn't quite up-to-date. I have an approved overdraft of £1700 which I exceeded by £25 in June this year (4 months ago) around the time our second baby was born. I also went over slightly in June 2008 due to a relocation from Cambridge to Bristol.

* Property previously underpinned, but should be fine. Looks solid but obviously survey and valuation need to come back clear

* Technically, I am on a fixed-term contract until May 2011. I work for Local Government and have 5-years continuous service, which means they need to try and re-deploy me at the end of my contract, or lay me off with 3 months pay.

* I haven't saved for 3 months because I have been tending my debts, but can obviously show back-statements - I happen to bank with HSBC so they should be able to check.


Weighing this up as an underwriter, do you think that we stand a chance of getting a mortgage at the end of all this? Any advice or comment gratefully received!

NPowerUser

I went to an IFA a few months ago with trouble verifying my income, thank fully he was able to fast track it.

Under the new proposed system I doubt I would be able to move. The fact that I am putting up 75% of the value of the new house out of my own sale proceeds, makes me a fairly safe bet to the lender. They are lending me just 25% of the new houses value.

At the end of the day, if I default they can kick my family and I out of the new house if we defaulted and they would easily get their monies back.

Under the new proposed system, being self employed, I doubt I would be allowed to borrow very much, if anything at all.
http://www.mortgagesolutions-online.com/mortgage-solutions/news/1559021/self-employed-lose-mortgage-market-review

Pammy

This isnt something to worry about right now though is it? This is a proposal for review in Jan 2010 as I understand it?

The other thing I don't understand is why responsible lending only applys to mortgage lending? What about the evil credit card companies or the store cards that ram them down your throat and starts the long spiral of debt for many people.

dmg24

I am still in favour of everybody having to pass an exam before they are allowed to borrow anything.

Pammy wrote: »

What about the evil credit card companies or the store cards that ram them down your throat and starts the long spiral of debt for many people.

This supports my point. Nobody is forced to borrow anything. If people took responsibility for and understood what they were doing with money, they would not hit such problems with debt. People need to understand that they should only borrow what they can afford.

opinions4u

SirSaverOBE wrote: »

Opinions4u - thank you for all of your posting on the forums, I have been following your advice keenly.

Crikey, don't sue me if it goes wrong! I prefer to call it experience rather than advice. I ain't always right and it's a few years since I was an underwriter!

Don't take the points I make below as negatives, just trying to ensure that you have your eyes open as to what could happen.

* In brief, HSBC calculators online came up with £146k that they would lend. I applied for an AIP of £141k and it was okay.

Did this break down the tax credits? If it didn't then there is the possibility they may not be so keen on using the unearned elements of your income.

HSBC tend to have the best rates at the moment. As a result, they appear to be cherry picking the best (lowest risk) applicants. If they do decline you that shouldn't mean another lender will do the same.

* We are FTBs! Hooray!

Higher risk than an existing mortgage borrower with a proven payment record.

* Now - we have a £50k deposit, £28.4k of which has been meticulously saved every year using regular savers and then dropping the lump into an ISA. The rest was either inherited or gifted by parents.

* We have 74% LTV

Good so far.

* I now have zero debt on cards or loans, but my credit file still has some balances showing as they haven't been updated yet. The adviser said that this shouldn't matter as you can mitigate on the form. I am prepared to send documents to prove this is the case.

Have the statements to hand to prove this.

* My credit file is clean and I have an Experian score of 926.

I'd pay little attention to an Experian score. It's a guide, but each lender will have their own credit scoring system that will work differently.

* We can demonstrate that we still have enough money aside to do some work on the house and that we know what that work entails

Good stuff. Only likely to be an issue if the valuation throws up any issues.

* We just have enough available to cover 60 days if I lose my job

* The new house is 8 miles from work (covers your point about living near place of work)

Good again.

* As mentioned, credit file isn't quite up-to-date. I have an approved overdraft of £1700 which I exceeded by £25 in June this year (4 months ago) around the time our second baby was born. I also went over slightly in June 2008 due to a relocation from Cambridge to Bristol.

I doubt these will show on a credit reference and I doubt they will ask for bank statements that far back that highlight any charges.

* Property previously underpinned, but should be fine. Looks solid but obviously survey and valuation need to come back clear

This could scare a potential lender. They may require a structural engineer to confirm the property is sound - at your expense. This may not be a bad idea anyway.

It may also give you problems getting buildings insurance. You may need to find out who the current insurer is as they may be the only company prepared to give you cover.

* Technically, I am on a fixed-term contract until May 2011. I work for Local Government and have 5-years continuous service, which means they need to try and re-deploy me at the end of my contract, or lay me off with 3 months pay.

My employer was usually comfortable with renewable fixed term contracts where you had 2 years or longer in the job.

* I haven't saved for 3 months because I have been tending my debts, but can obviously show back-statements - I happen to bank with HSBC so they should be able to check.

Not an issue. If you have statements showing debt reduction this is a positive.

Weighing this up as an underwriter, do you think that we stand a chance of getting a mortgage at the end of all this? Any advice or comment gratefully received!

Key concerns for me are:

- tax credits and child benefit: what is the lender's policy on using these with income being stretched?

- underpinning of property: does the property provide adequate security for the mortgage and, if so, can it be insured?

- fixed term contract for employment: what is the lender's policy for this?

There are lots of positives that you outline above. Good savings record, debt reduction etc.

Even if HSBC say no (and they may well say yes!) you should be able to secure a mortgage from a mainstream lender.

Hope this helps. Best of luck.