YOU could soon find it easier to get a mortgage, as the City regulator is planning major reforms to help more buyers get on the ladder.
The Financial Conduct Authority (FCA) has set out proposals to transform the mortgage market and give lenders more flexibility.
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Under the proposals, first-time buyers, older borrowers and the self-employed could find it easier to take out a mortgage.
The FCA said these groups are currently not being helped enough and the mortgage market has not been keeping up with modern lifestyles.
Its plans include:
Making it easier for lenders to offer flexible repayments for people with variable income, like the self-employed
Making it easier to lend to people paid in foreign currency
Encouraging lenders to assess affordability based on a person’s full and current situation, rather than automatically excluding them because of minor or past credit history issues
Helping older homeowners unlock wealth built up in their property by updating affordability guidance for retirement interest-only mortgages
Updating rules on interest-only (or part interest-only) mortgages to give lenders more flexibility, while still making sure most borrowers have a clear plan to repay.
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The plans are part of a consultation, which will be open for feedback up until July 28.
It’s expected the rules could start coming into force later this year.
David Geale, executive director for payments and digital finance at the FCA, said: “We’re living longer and how many people work has changed.
“Our mortgage rules need to keep pace so those who can afford to repay can borrow.
“Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved.”
In particular, the regulator wants to increase access to interest-only and part interest-only mortgages.
With interest-only mortgages, you only need to pay the interest on the loan during the term of the deal, then you pay the original amount you borrowed in a lump sum at the end.
They can be used to keep monthly payments down and help people access home ownership earlier, but they’ve been controversial in the past as some people have later struggled to pay the original mortgage loan back.
Stricter affordability requirements were brought in in 2014 as a result.
Some people have part interest-only mortgages and part repayment mortgages (where you pay off the interest and part of your loan each month).
The FCA is now proposing that if the interest-only part is less than 25% of the property’s value, the buyer will not need to provide a credible repayment strategy.
This should help more aspiring homeowners get onto the ladder.
The consultation document said: “We believe that interest-only and part interest-only/part repayment lending could support some FTBs (first-time buyers) in getting on the property ladder, however the changes we are proposing are targeted, and would not make interest-only mortgages universally accessible.”
It comes as MPs have called on the Government to reform stamp duty to help more people get on the property ladder.
Stamp duty is a tax applied to home purchases, and for first-time buyers it’s added to homes worth more than £300,000.
The Housing, Communities and Local Government Committee has said a consultation should be launched by the end of this year to look at reforms.
Meanwhile, the FCA changes could also make it easier for the self-employed to get on the ladder.
Recent research by Pepper Money revealed 75% of self-employed workers struggle to get mortgages.
This is because they often struggle to meet the income evidence requirements of major lenders.
However, allowing lenders to offer more flexible repayments for people with variable income could help more of this group get on the ladder.
Sarah Coles, head of personal finance at AJ Bell, said: “Self-employed people with lumpy incomes have been forced to contort their finances into paying the same sums each month under existing rules.
“A change could allow them to access products that are flexible enough to fit around their lives and their needs instead.”
The proposals will also make it easier for older homeowners to borrow money against their homes.
This would allow them to unlock cash tied up in their property wealth to fund their retirement.
They will also relax strict affordability rules for couples applying for joint retirement mortgages.
Karina Hutchins, director of mortgages at UK Finance, said: “UK Finance welcomes the proposed changes to the mortgage rules.
“These proposals update existing guidance and give lenders greater flexibility to support customers’ evolving needs.
“They also support the Government’s pro-growth agenda by removing barriers to finance and helping more prospective home buyers on to the property ladder.”
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
