The Mortgage muddle

Making sense of the Mortgage Market Review and how it affects us all

I recently sold a house I’ve owned for eight years, but my successful sale at a great price had a sting in the tale….

Although I lived in the house originally, I’d left it rented out whilst it recovered equity (having bought at the very top of the market, as we property experts do). When the tenant gave notice, I thought it would be a good time to finally buy, having rented since I’d moved out.

I went to my lender and asked for half the mortgage I’d originally had for those eight years. They said no.

“But it’s half the mortgage I’ve been paying every month without fail for eight years!” I protested. Not only that, but my income has shot up during that time.

They wouldn’t be swayed. And after a few conversations with friends and on social media, I realised that I’m not alone. Far from it, in fact. There are many, many homeowners who are trapped in their homes because they cannot borrow sometimes a fraction of the mortgage they currently have.

In April 2014, the Mortgage Market Review (MMR – not to be confused with the immunisation) brought into force new rules about mortgage lending. These rules, introduced by the Financial Conduct Authority, were designed to ensure that lenders would be more careful about thoroughly checking how affordable and suitable the mortgage product was to a particular borrower.

I recently attended an event hosted by Experian, at which they explained the ramifications of the MMR, one year on, in their report The Mortgage Muddle, One Year On From the MMR. Here are some highlights:

  • 12% of borrowers can’t get the mortgage amount they want
  • 5% don’t meet the lending criteria
  • 11% have no idea why their application was refused

Not being able to move home can have huge implications for your quality of life; maybe you have children and as they grow, you urgently need more space, but can’t buy a bigger house. Or perhaps your children have grown and left, and you need to downsize, but can’t afford to buy a property outright with your equity.

There is a solution, but it won’t suit everyone. Like I did, you can simply rent your home to a tenant, and rent the home you need. Many homeowners have done this since 2007, resulting in a strong ‘accidental landlord’ market. This is coming to an end now, as property prices in most areas of the UK have finally surpassed the 2007 peak prices, and owners are again able to sell, but like me, will they be able to secure a mortgage? Not only that, but the ‘profit’ you make on your rental – i.e. the difference between the rent you charge and the interest on your loan, plus allowable expenses – is taxable, giving you even less in the pot each month. Evermore complicated legislation for landlords also means that unless you use a professional letting agent, you could find yourself in trouble with tenants who are often more clued-up than their landlords, thanks to organisations like Shelter.

What I learned at the Experian event, was that before you put your home on the market, or accept an offer, taking these six steps can help to make sure your home move has a happy ending:

1. Know what you have to spend – make a list of your available savings so you know what deposit you have to put down.

2. Do your research – use mortgage calculators and talk to your financial advisor at an early stage, to find out the best lending route for you.

3. Assess your spending – look at the last few months’ outgoings. With online banking, this is surprisingly easy. You can simply download your transactions onto a spreadsheet so you can total incomings and outgoings easily. Are you overspending each month, or do you have plenty of month left at the end of the money?

4. Check your credit report – before you take any action, check your credit report – preferably with all three credit reference agencies: Equifax, Experian, and Callcredit.

5. Improve your credit score – Experian advise to take steps early to get you’re your credit report into shape before making your mortgage application. For example, ensure you’re registered on the Electoral Roll and paying down outstanding credit card balances. This handy guide from Experian on Demystifying Your Credit Score l may help you with this.

6. Last step – check every last detail of your credit report to make sure it’s 100% accurate. Name and address spellings, date of birth and accounts – these all need to be shown exactly how you would enter them onto a mortgage application so there are no discrepancies.

Finally, Martin Lewis on his Money Saving Expert website has a great guide to credit scores here.

I’m still working out the best route for me to home ownership again, and I’ll keep you posted.

If you’d like my help to sell your home more effectively, please answer a few short questions here and if I think I can help you, I’ll be in touch.