New mortgage rules lead to home lending logjam
05-17-2014
New mortgage rules lead to home lending logjam
By James Pickford
Home loans at three month high...File photo dated 17/02/09 of a woman looking at houses for sale in an estate agents in Edinburgh as mortgage approvals to home buyers edged up to a three-month high in April, in further signs of a housing market pick-up. PRESS ASSOCIATION Photo. Issue date: Friday May 31, 2013. See PA story ECONOMY Lending. Photo credit should read: David Cheskin/PA Wire
©PA
Mortgage application bottlenecks, caused by stricter new lending rules, are frustrating borrowers and putting deals at risk.
The Mortgage Market Review, which came into force in April, requires applicants to provide more detail about their income and expenditure to ensure borrowers can afford to repay their home loans. Energy, food and childcare bills can be queried in forensic detail, as well as monthly spending on personal grooming, eyecare and pets.
The extra grilling has caused some interviews to lengthen from around 45 minutes to three hours. As a result, the wait for a first appointment has become more protracted, estate agents and mortgage brokers said.
Simon Gammon, managing partner of Knight Frank Finance, said staff at bigger lenders were “not coping”. “Just to get an appointment is now taking two to three weeks, compared to a few days before. If you’re trying to buy a house that’s very unhelpful.”
Agents said the delays were prompting some sellers to question the reliability of their buyer’s finances. Anona van Lawick, associate at Strutt & Parker’s Moreton-in-Marsh office in Gloucestershire, said most applications had slowed down “enormously”, straining relations between buyers and sellers.
“It creates huge frustration and nervous distrust starts to creep in as time lags on. Sellers just cannot understand the hold-up and assume there must be a problem somewhere,” she said.
Robin Chatwin, an agent at Savills’ southwest London office, said a client had lost out on three prospective purchases while waiting for a mortgage, either because he was gazumped or because the vendors asked for a higher price to reflect a rising market in the intervening eight weeks.
However, some believe any delays are temporary and will recede as lenders adapt.
The Council of Mortgage Lenders, the trade association, said there were “no signs of market disruption” stemming from the MMR. “Indeed, according to the Bank of England’s recent credit conditions survey, lenders expect to increase the supply of mortgage credit over the next three months.”
There is not yet data showing mortgage completion figures since the rules were introduced, but the number of house purchase loans made in February, when lenders were gearing up for the new system, was one-third higher than the previous year, according to CML data this week.
However, it also showed new mortgages with terms longer than 30 years were at record highs, suggesting people are seeking to make loans more affordable by repaying them over a longer period.
HSBC said waiting times for appointments and the length of interviews were both “falling” as it embedded the new rules.
The Financial Conduct Authority, which brought in the changes, said the extra time on applications was “well spent” to ensure people did not take on debt they had no hope of repaying.
Linda Woodall, FCA director of mortgages and consumer lending, said: “We expect there to be a period of bedding in, and in due course for the process to speed up.”
Additional reporting by Adam Palin
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