Questions to expect from mortgage lenders
Are you planning in the not so distant future to get on the property ladder and purchase your first home, or perhaps you already have a mortgage but want to change the one that you currently have? Whatever the situation may be, you should prepare yourself to be ready to ask questions, as you would if you were applying for other forms of credit, such as a guarantor loan or getting a credit card. But what exactly are the questions that you should be anticipating from mortgage lenders? We take a look at the sorts of questions you should be preparing for when it comes to the approval process of applying for a mortgage.
The Mortgage Market Review
Before we get to looking at the questions you can expect to be asked by mortgage lenders, it is important to clarify that even after jumping through many hoops when it comes to the mortgage application process, there still remains no guarantee when it comes to whether you will be successful or not in your mortgage application. Why? This is because in the UK there are now very strict affordability rules that have been implemented as a way to force lenders to make sure that the people borrowing the money will be able to afford financially to make remortgage payments in the future.
The focus on affordability has increased in the last couple of years in this industry due to the enforcement of new rules in 2014 through the Mortgage Market Review, meaning that lenders had to enforce a larger number of stringent requirements in order to adhere to their rules and keep in business (as well as not receive fines). The reason much more stringent rules have been implemented recently is due to the fact that the City watchdog had become increasingly concerned that lenders were making it too easy for borrowers to get a mortgage, without checking if they met criteria that indicated that they would be able to pay the amount they have borrowed back. These irresponsible lending practices were believed to have a huge contributing factor to the global financial crisis of 2008.
This is due to the fact a considerable amount of households found it extremely difficult to make repayments when the crisis struck, as they had borrowed too much. One of the reasons why this used to happen was due to the popularity of what was known as ‘self-cert’ loans. Prior to the financial crisis, it was common for lenders to provide and approve these kinds of loans where borrowers simply had to declare their income in a mortgage application, but there was no need for them to provide any evidence of this income. In reality, this meant that many borrowers ended up exaggerating in applications about how much they earnt, in order to be able to borrow a much higher amount from a mortgage lender.
These days it is now the responsibility of mortgage providers, as a result of the Mortgage Market Review to assess as to whether or not it is possible for customers to afford the mortgage in the long-term. This applies not only to buyers but also for anyone who is considering remortgaging as a way of increasing the size of the loan, vary the timeframe of the existing mortgage or transfer to a new property entirely.
Interest rate stress test
There have also been additional rules implemented when it comes to the mortgage applications process which means that some lenders now have to apply an interest rate stress test. But what exactly is this? This is a test that assesses the borrower’s ability to deal with the increase in the mortgage rate (ie. 3 percentage points above the standard variable rate) or the rate one would receive for a tracker mortgage.
With certain mortgage providers, this is in an important part of the application process, meaning that as a potential borrower you should definitely be prepared to answer questions that will help to prove that you enough disposable income to weather potential blows. This may be a particular problem for those who are contract workers or self-employed.
Questions you could be asked by a mortgage lender
As a result of these new affordability questionnaires that are becoming increasingly commonplace when it comes to mortgage applications made, it means that the typical questions that you otherwise would have been asked by a mortgage lender is now often far beyond asking questions regarding what your essential living expenses are. For example, someone’s payday loan history, or if the borrower gambles, may now be covered in questionnaires.
- Do you have dependants/children?
- Are you considering planning a family in the near future, or anticipate having more children
- Are you considering leaving your job soon, or hope to set up your own company or become completely self-employed?
- Have you ever taken out a payday loan in the past, or are you considering getting one in the future?
- Have you gambled in the past, or do you enjoy regularly gambling?
- Are you anticipating that your income will end up falling in the next few years?
You may be also asked how much you spend on:
- Eating out at restaurants
- Mobile phone contract
- TV and internet subscriptions
- Clothing and footwear
- TV and internet subscriptions
- Dry cleaning
- Essential and non-essential travel
- Gym memberships
- Child care
- Dental care
- Eye care
The high-net-worth waiver
The questions above may not be deemed applicable to you if you are considered to be a high-net-worth borrower. You will need to have assets of at least £3 million in total and an annual income of £300,000.