Bizarre questions asked by mortgage lenders

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How often do you have friends over for dinner? How often do you get your hair cut? Do you play golf? These aren't the questions being asked by inquisitive friends: they are the ones being posed by complete strangers when you want to apply for a mortgage.

But why do they care, and should you be worried?

MMR

The reason for the unusual questioning is what's known as the Mortgage Market Review or the MMR. This was carried out by the Financial Conduct Authority as part of the industry's efforts to stop people taking on mortgages they couldn't afford.

The idea is that when you apply for a mortgage, there's a good chance you will have to take advice, and the advisers will ask enough questions about your spending habits to work out whether the monthly payments on your mortgage are going to be affordable.

Odd questions

However, in reality, it appears as though some lenders are erring on the side of caution, and asking bizarre and intrusive questions. A survey of advisers, carried out by trade magazine Money Marketing, listed some of the more unusual questions as: How often do you have friends over for dinner? Do you have steak? When you move house, are you still going to spend £21 a month on milk deliveries? Do you gamble? How much do you spend on alcohol, and does this increase in some months?

The Telegraph reported that questions were likely to include details on whether you were planning to start a family or have more children - and whether you planned to change jobs or start a business of your own.

A separate study by the Daily Mail found that people had been asked whether they played golf and how much they spent on getting their hair cut. The newspaper added that in some cases questions took up to three hours, and that some applicants had been offered £100,000 less than they asked for as a result of the answers they had given.

Should we be worried?

On the one hand, the reason for asking these questions is perfectly sound. In an ideal world, before you approach a lender you should have drawn up a budget, looking at how much your monthly repayments are likely to be, and any sacrifices you have to make in order to fit them into your household budget. You should also have considered the bigger questions, such as how you carry on paying the mortgage when you start a family, and how you would cope if you lost your job.

The idea of the new rules is to formalise this, and to make sure that people who haven't gone through this process themselves are forced to go through it with an adviser in order to establish whether they can afford a mortgage.

The big advantage of this is that people who simply cannot afford repayments will not be able to borrow more than they can afford and stretch themselves so far that they quickly run into financial problems. As the financial crisis showed, borrowing like this is a terrible mistake for the individuals concerned, and can cause real problems for the financial system as a whole when people fail to make repayments.

Risk

However, there is a real risk that the rigid way lenders interpret the answers to questions will not include the kind of holistic and creative planning you can do on your own in order to make things work.

The experts warn that this could cause particular problems for parents, because this is the first time that childcare is being factored into calculations. Childcare is often the biggest monthly outgoing - especially for parents with young children - so there's a very real risk that those with hefty childcare costs will have a difficult job in persuading a mortgage lender they can afford a mortgage on top of this.

This will come as a particular blow for parents who are renting at the moment. There's every chance that their rent is at least as expensive as the mortgage repayments would be - and somehow they are making their finances work - however, under the rules of the lender they could find themselves rejected on the basis that they cannot afford it.

Good news

Clare Francis, mortgage expert at MoneySuperMarket argues that this doesn't have to mean the end of your mortgage dreams. She points out that: "If you know what mortgage you want – and a lender is satisfied you know what you are doing - you will still be able to apply direct without advice."

Matt Sanders, Gocompare.com's mortgage spokesman adds: "There are a number of steps you can take to improve your chances of being approved". These include checking your credit score. There are a number of things to look at here, including checking you are on the electoral roll, ensuring all the details are accurate, and if you have lots of available credit that you don't need, consider either closing those accounts or reducing your credit limit.

You should also review your outgoings. Sanders says: "It's unlikely that lenders will frown upon your regular Friday night takeaway treat or trips to the cinema, but if you're paying for memberships or subscriptions that you don't use, or could improve your cash flow by shopping around for cheaper alternatives, then it's worth doing so."

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