Really don't understand the new mortgage affordability test

[crazyboots]

We are about to apply for a mortgage as moving house.

We've been paying a mortgage for 13 yrs with no problems and the amount we ask to borrow will be 3 x one income, slightly higher than the mortgage we have now, but have been reading that we might fail the test now because of the state of our bank account

We generally have no money left at the end of the month at the moment. We are currently down to one income, we pay x amount into a holiday account each month and our older children do whatever activities they want and we generally aren't overly careful. We have about £20,000 in savings so if things get very tight we know we can transfer some money over, which gets replenished over time.

From what I have read holiday preferences, takeaways and child expenses are taken into account but surely this is a bit odd as these are totally moveable feasts eg. if interest rates went up then things like holidays, takeaways, activities would be curtailed as they were when I was on maternity leave with older DC plus childcare costs reduce with age and, in our situation I would get back to work without being particularly fussy about what I did (as I am being now!).

Surely affordability is more down to fixed expenses like long term debts, child support, additional property etc, not easily changed lifestyle decisions. Have I misunderstood?

I am about to start phoning around and wondered if anyone had insight into how these tests work so I don't sound quite so daft!

See a broker. Every lender is different, and if you can get through to the high street banks without being on hold for 90 minutes, well let's just say that will be the only positive.

Ooh, marking my place. Have had a mortgage with well known lender for a while, but am looking to move and battling with the getting through thing at the moment.

Really stupid question, but are brokers really free/impartial? How does it work?

I have just re-mortgaged; they had to do the affordability checks and see all my documents even though I had a mortgage already and was moving to a product that was cheaper. My outgoings have gone up substantially because of childcare, so the situation was that I could carry on with the existing, more expensive mortgage but not take out the new, cheaper one. God love the advisor, two meetings of over an hour later, he did sort it out, but it kind of established for me that I cannot move until DCs are all in school.

I have used a broker before, they earn a fee on the product they sell you.

These checks are ridiculous and I am sure they are going to stall the market for a while. Bluebell it is totally mad isn't it, makes no sense. The BoE have released minutes of a meeting a few months ago and have stated that interest rates will not rise to a normal 5% for a very, very long time. OP, my understanding is that they will only check 3 months statements so just be "very good" for three months. Like you say if rates went up and you had to live on beans you would, but why do you have to do that now ?. Our mortgage advisor is tearing her hair out god love her.
logtallsally an IMA will usually earn a fee from the product they sell, but will have a full view of the market and will be able to advise on the best product for you. Some IMA's charge a nominal fee of say £250 which may cover you for life. Worth paying in my opinion, I have a fantastic IMA, if you want her details PM me, she can do everything via email.

HaveToWearHeels do you believe that though? That the BoE won't raise interest rates or that they are just saying that at the moment to keep things steady/calm?

Thank for the replies - it looks like we may need a plan B. We were hoping to apply in principle so we could make offers in the next couple of weeks which doesn't give us anytime to tidy up the spending (just kicking the waitrose habit would take be a start).

Also all our calculations are made on a mortgage term of 17 years left, I suppose we could increase that (doubt they'd let us calculate on 25 years though as we're mid 40's). So complicated.

Hi Possum, I believe that interest rates will rise, starting next spring but they will rise by very small amounts. DH follows this with interest as Economics's is his thing (studied at university) and we have 7 mortgages. They will eventually go back to 4-5% but it will take a while to get there.

thanks HaveTo

I read recently that the checks don't apply to mortgages over 5 years. However, when we moved last year most of the high street banks were already doing these kind of checks and there were only a handful of old school building societies that would lend us what we needed. This was despite us taking a 5 year deal and increasing our term so our monthly payments were the same. We used L & C brokers who don't charge a fee and could advise us who would lend to us. It's definitely worth calling them.

what do you mean AllBoxed "mortgages over 5 years" ? do you mean if you take a fixed term mortgage ?

Another one battling wth actully even just getting through to a bank regarding a mortgage.

DH phoned 3 times last week. Each time takes at least 30-40 minutes and then they end the call saying they will call you back and THEY NEVER DO!
It is now almost two weeks since the first phone calls and they still have not called us back, despite the last time we called them being only this week.

We can't get the information we need any other way bar talking to a specific department at a specific bank. Argh!

Most lenders will allow you to borrow up to state retirement age of 66/67/68 with no additional checks because the government deem us able to work to that now.

You can no longer get an agreement in principle without knowing which house you are going to buy because it involves a credit check and the broker will get in trouble if they do one and then switch the house. That is an FCA requirement, not a guideline.

The paperwork involved in writing a mortgage now is phenomenal and do not be surprised if your broker has to come back and request additional information.

Additionally there are several well known high street lenders that have not adapted to this change well and are stressing themselves and everyone else out.

Yes - I meant taking a fixed term mortgage. I read it here

The Leeds has also launched what it said was the only 10-year fixed-rate Help to Buy mortgage on the market. This comes weeks after it was suggested that new rules on mortgage affordability that took effect on 26 April could trigger an increase in the number of five-year-plus fixed-rate deals. That is because under the new regime, the "stress testing" lenders must carry out to check whether people would still be able to afford the mortgage when interest rates rise, only applies to deals with a term of less than five years.

Maybe it doesn't apply to the affordability bit though - just the interest rates?

thanks that's really interesting.

DH has read something today about people not being able to remortgage on a fixed deal of 2.99% because of the stress tests so transferring them to the variable rate of 5%. Absolute madness. This is what happens when politicians get involved.

Does anyone know if the LTV make any difference to levels of 'affordability' required - our deposit will be approx 60% ?

I suspect having a huge deposit will still be a significantfactor for the bank's decision. Also if you are putting money into a savjngs account each month, you still have it, so just show them that statement too.

I would use a broker - I found ours on the Guardian website years ago - and generally do some research myself and then ask him if he can beat the deal from X bank. Recently he couldn't get a better rate but it was worth £150 to hear him tell Santander on the phone they were idiots, then do all the form-filling and phone calls with a different bank.

Thanks Notcitrus I really hope they take deposit into account. Do you know what kind of multiples are deemed reasonable now ? We want to borrow 3 x one income which is a few years ago would have been quite conservative in London.