Homebuyers to face tough new questions from lenders

Changes ordered by FCA


Mortgage application

Homebuyers looking for a mortgage after next week will face far more intrusive questioning about their finances, after reforms ordered by the Financial Conduct Authority (FCA) take effect.

After concerns that people were taking on mortgages they couldn't afford - and with interest rate rises starting to look likely - banks and building societies have been ordered to get a clearer picture of a borrower's finances before offering a loan.

As a result, from this Saturday borrowers may face detailed questions about their outgoings, from childcare and food costs to gym membership and holidays.

"In the past too many people got a mortgage by simply telling their lender they would have no problem repaying their debt, and that was that," says FCA chief executive Martin Wheatley.

"Getting a mortgage can be one of the biggest financial decisions people will ever make, so it needs careful consideration. Our new rules will hard-wire common sense into mortgage lending, and the guide we have created will help explain those changes to borrowers."

As part of the reforms, interest-only mortgages are likely to disappear, as are short, fixed-rate 'teaser' mortgages on temporarily-low rates. Borrowers' finances will also be 'stress tested', to see whether they would still be able to pay were interest rates to rise.

"Consumers are... concerned about a rise in mortgage interest rates. However if this does occur towards the end of 2015, the Bank of England has already indicated that any change will be gradual," says Paul Broadhead, lead of mortgage policy at the Building Societies Association.

"If people are worried about the repercussions of a rise in interest rates on a current mortgage, or have questions about their ability to access mortgage finance, we would encourage them to talk to their lender for information, advice and support."

Lenders have been gearing up for the changes for some time, and some have already introduced the new procedures. However, there's been concern that mortgage approval will take much longer in the past - and that borrowers are likely to try and game the system by reducing their expenditure for three months to 'clean up' their bank statements before making an application.

The FCA has detailed information about the changes, here.