‘Mortgage police’ demand access to family finances

Mortgage finance is becoming more difficult to unlock. Picture: Getty

From today, anyone seeking a mortgage will be asked anextensive list of personalquestions by lenders, ranging from parenthood plans tohaircut habits.

The industry-wide changes affect homebuyers and people looking to remortgage.

It will mean that lenders have to take a much stronger interest in people’s spending patterns and how their life plans could affect their ability to meet repayments.

Mortgage applicants will need to sit through longer interviews, provide more paperwork to back up what they are saying and could find themselves taken aback by the probing nature of some of the questions.

If lenders later discover that applicants have lied, they face being reported to the police for mortgage fraud.

The Mortgage Market Review (MMR) rules aim to ensure there is no return to any irresponsible lending practices of the past.

But some concerns have been raised that the stricter rules could slow down the UK housing market, which has been springing into life recently.

Each lender will have their own interpretation of new rules but, in general, people are likely to be asked for more detail about regular outgoings such as childcare, food, bills, loans,credit cards, toiletries, hobbies and leisure activities.

Lenders will also look for any impact that future life changes could have, such as when would-be borrowers plan to retire and how they might spend their old age. There have also been reports of somepeople being asked if they are planning to start a family.

Brokers warned that some people could find it hard toanswer the open-ended questions.

Andrew Montlake, a director at broker Coreco, said ofpotential buyers: “It’s important to prepare a lot earlier, potentially six months before you apply. Start looking through your documentation and go through a budget.”

Mr Montlake said most lenders will want to know whether mortgage applicants are planning to increase their spending for any reason in the nearfuture and if they are expecting a change in their income.

Ray Boulger, senior technical manager at mortgage adviser John Charcol, said that people may find themselves in a “difficult position”, when lenders put questions about what mayhappen in the future. He said that if a couple have a child and one parent stays off work for a year to look after the baby, the family may say when they apply for their mortgage that theparent is planning to go back to work.

But if going back to workincurs childcare costs, he said the lender may focus on this extra expense rather than the additional income generated.

Mr Boulger said: “The danger is that a mortgage that is difficult on one single salary could get declined on the basis it’s not affordable. Different lenders are reacting in different ways.”

A spokeswoman for the Financial Conduct Authority said lenders would need to strike a “balance” between when to ask about the possibility that a couple might drop to one income by starting a family, and when this was not appropriate.

She stressed that applicants had to tell the truth.

She said: “Lenders are very concerned about mortgage fraud. If it is wholesale lying they can report them to the police.”

Lenders will also have to apply “stress tests” to ensure someone could still afford a mortgage after a rate rise. In some cases this could involve buyers having to prove they would be able to pay a mortgage with a 7 per cent rate of interest.

But Paul Broadhead, head of mortgage policy for the BuildingSocieties Association, warned: “It is vital that this new regime does not dent consumer confidence or sentiment in the housing market.”