Once upon a time, loans on ludicrous multiples of self-certified income were the thing. But that was then and this is now: and the Mortgage Market Review is leading to ever-tightening restrictions on lending.
For example, whereas before the changes applicants could expect to borrow up to 5 times income, lenders are now being far more stringent meaning many will advance only 4 times income or even less. The Lloyds banking group which incorporates Halifax have announced with immediate effect an absolute maximum of 4 times income on any loan over £500,000; and where they lead, expect others to follow.
Furthermore, as has been widely reported in the press, lenders will now seek to assess affordability by routinely looking at 3 months’ worth of bank statements and will critically examine levels of current expenditure. Assessing affordability and “stress-testing” by reviewing essential non-discretionary expenditure is a practice which is prudent and sensible on the part of the lender. But lenders go further, drilling down into purely discretionary expenditure such as haircuts and gym memberships. That, frankly, makes no sense at all: in fact, in a sense, high discretionary expenditure should logically rather reassure a lender than otherwise, since it demonstrates scope to meet borrowing costs by cutting down on it: but that isn’t how lenders see it. Spreading expenditure over various accounts won’t help either: lenders will want to see all these accounts to calculate affordability. And, of course, you don’t want any prospective lender to come across unauthorised overdrafts and returned payments in his review – they are a definite turn-off.
On the other hand, you can play the game by their rules: being mindful of your spending and account conduct for the 3 months or so prior to an application is worth doing. It’s even been suggested that making lumpy payments such as pension contributions in one lump sum (outside the review period) rather than monthly is sensible. Of course, no-one should present a misleading picture or take on unaffordable debt: but we’re talking here more of taking a bit of trouble to make yourself vaguely presentable. You’d do it for a first date (we assume): so why not do the same (in financial terms) for a “first date” with a lender?
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