Monday, 28 April 2014

Pear-shaped mortgage market?

How many property purchases are going pear-shaped because of the new, stricter rules on mortgage applications introduced by the financial watchdog, the FCA?

One family told me a worrying tale today about their mortgage offer which had been reduced to £122,000 from £134,000.

The repayment period was cut from 22 to 17 years and the repayments themselves went up to £750 a month from £660.

This family has mobilised all its savings in order to afford the bigger deposit now required to move to the home they want to live in.

But as one of them said: "how will this affect others out there in a similar situation, who do not have the savings to back them up and are now likely to lose the homes they thought they could afford?"

He said that during the inquest into the household's spending -- a feature of the new application process -- he was asked about "eating, smoking and drinking and whether my wife planned on having children".

The family had looked at different properties and had ditched one with structural problems in favour of another. So it's perhaps not surprising that the lender took a fresh look at the situation.

On the other hand, it is a pretty common experience at the moment for buyers to get close to purchasing several homes before finally getting one.

There have already been predictions of a sharp increase in outright rejections of mortgage applications, but a reduced offer can be almost as damaging.

Could it be that the FCA will have to push lenders into easing off on stress tests and what many see as intrusive questioning, to stop the housing market being disrupted over the next few months?

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