Remember how easy it was to get a mortgage? Back in the 1980s and 90s, banks handed them out like spare lollipops at a kid’s party. Even when interest rates hit a dizzying 15%, I was able to get a mortgage on a posh Edinburgh flat quicker than you could say ‘Financial crisis on its way!’Basically, if you had a pulse, you could source easy borrowing to your heart’s content. Indeed, back in 2007, a staggering 45% of all loans were approved without even checking the income of the borrower! But not any more. New rules just introduced by the Financial Conduct Authority mean that, if you’re applying for a mortgage to buy your home, you’ll face much tougher checks from now on.
- Firstly, you’ll need to show that you’re financially healthy. Your lender will be required to study your last three months’ bank statements to make sure you have enough spare cash to afford the repayments – especially if interest rates shoot up to 6% or 7%. Which means your local bank manager will be taking a keen interest in what you spend on TV subscriptions, gym memberships, cigarettes, even takeaways.
- Secondly, if you’re self-employed, you can forget about telling your lender roughly how much you earn. That may have been the case in the laid-back past, but now you’ll have to prove it, with hard facts and figures. No more self-certification mortgages.
- Thirdly, your chances of getting away with paying off just the interest – and worrying about the capital sum later – are vastly reduced. If you want an interest-free mortgage now, you’ll have to have a ‘credible strategy for repaying the capital’. And that doesn’t mean the vague hope that you can sell your home to cover the sum you originally borrowed.
The parent trap
There’s one other rule change that will seriously decrease the potential for reckless, 80s-style lending. From now on, the cost of childcare will be taken into account when deciding what you can afford to repay.
This seems such an obvious thing, yet for years the bank didn’t care what you spent on nurseries or nannies. I remember when I had two small children in full-time childcare at a crippling cost of £700 a month. And that was a few years ago. Now, with the cost of childcare having soared by 19% in the last year according to The Observer, you can fork out as much as £1,166 a month for just one child in London. That’s a heck of a lot of nappies and coloured crayons.
According to Santander, the new rule change means that a couple each bringing in £35,000 a year could borrow almost £330,000 if they have no children, but only £205,000 if they’re saddled with kids. This only proves what I’ve known for a long time – that one’s children, bless them, are a far bigger financial burden than any loan.
Of course, I could always try getting them to pay their share when they’re older. But I know there’s as much chance of that as getting a mortgage for a million pound house!