35% of buyers confused by mortgage affordability rules

21st September 2015

Two-thirds of potential house buyers have been left in the dark about new mortgage rules introduced last year, according to research from mortgage lender and broker Ocean Finance.

Around 31% of those who plan to buy a property within the next two years are unaware that mortgage rules were overhauled more than a year ago. A further 35% knew mortgage regulations had changed but are confused by the new rules.

The new mortgage rules mean that borrowers will face increased scrutiny from lenders about their incomes and their expenditure, including spending on items such as childcare, holidays and entertainment.

Yet 70% of those questioned were unaware that lenders are required to look closely at their spending. Consequently, a quarter said they haven’t changed their spending habits to help them qualify for a mortgage.

Just 24% of aspiring homebuyers were aware that the new rules also test their ability to afford a mortgage if interest rates rise. Only 16% knew that the rules would also test their ability to withstand changes to their personal circumstances.

The research shows that a third of potential homebuyers are so concerned about the tougher mortgage rules that they expect to have to delay buying a house so they can save for a bigger deposit and get into a stronger position to obtain a mortgage.

Gareth Shilton, Ocean’s spokesperson, says: “More than a year after the new mortgage rules were introduced, potential buyers are still in a state of confusion about what they mean in reality. Even more worrying is that a large chunk of people who are gearing up to apply for a home loan are not even aware that the mortgage rules have changed.

“As an industry, we need to do more to educate buyers and to guide them through a process which many people are finding understandably daunting.

“For anyone who plans to apply for a mortgage in the next year, it’s key that their finances are in order, including checking their credit file and gathering all their paperwork early to show as evidence. They would also be wise to cut back on non-essential spending such as takeaways and subscriptions, and to ensure that bills are paid on time so they demonstrate that they can consistently live within their means and stick to a budget.”

*2 year fixed with TSB 1.09% then 3.59% - APRC is 3.3% Max LTV is 60%. Quoted on 27th May 2020.