Does your potential buyer pass all the new tests?
On 26th April, the Mortgage Market Review rules come into effect. Making it more difficult for the buyer to get a loan, the new rules are sure to reduce the likelihood of a quick sale for your property.
The potential buyer can no longer 'self-certify' their income in their mortgage application - they will have to provide the lender with hard evidence of their income.
In fact, under the new rules, a lender will delve deep into a buyer's finances from how much they earn and how much they spend on food and utility bills, to the size of their debts.
The buyer will be tested on whether they will be able to afford their mortgage repayments when interest rates rise.
Mortgages have never been cheaper than they are now but the Bank of England base rate will inevitably rise. Barclays predicts it will reach 1.25 per cent by December 2015. Many lenders who have introduced the new rules early already test applicants on the basis of mortgage rates hitting seven per cent in the next five years.
And, if your buyer is hoping for an interest-only mortgage, it will be impossible unless they can demonstrate to the lender that they have a solid, credible, plan in place that can be used to repay the capital at the end of the loan. They can't just rely on house prices rising.
The FCA, the City regulator, has estimated that its new rules will affect up to 11.3 per cent of borrowers, or as many as 1.2 million mortgages in the UK. Those most affected will be the self-employed and those on fixed-term contracts - a growing band in the recession-hit economy.
Surely it is easier for a lender's existing borrowers?
In 2010, when the rules were first proposed, independent research by Policis concluded that 19% of current borrowers would fail the new affordability test.
If existing borrowers do not meet all the lending criteria when re-mortgaging, the FCA say there is “some flexibility to make exceptions to the affordability and interest-only rules, as long as they are not increasing the amount of their mortgage.” However, most people increase their mortgage when buying a new property so this gives little comfort.
Is there a potential new market in older buyers?
On the up side, the FCA add: “Older buyers will be able to take out a mortgage regardless of their age so long as they can pay off the debt, even in retirement.” However, these pensioners will still be subject to the affordability test so this is unlikely to open up a brand new 'grey' buyers' market.
What about the younger, first-time buyer market?
"The impact is less on first-time buyers than on re-mortgagors,” says the FCA. The Policis report predicted that the lower figure of 15% in this group would fail the new test. However, many potential first-time buyers are not making it to the application stage because of a fear of being declined. With the perception that banks are not lending and the astronomical size of mortgage deposits, the younger generations are giving up on owning a home and turning to renting.
In addition, the in-depth checks by lenders will inevitably mean that the time taken to get a loan will increase, some say double. This could have an impact on how quickly you can sell your home.
However, even after April, Property Rescue can guarantee you a fast property sale. Property Rescue will make a cash offer for your home that, if you accept, will be formalised and can be concluded within a few days or a timescale to suit you. They will complete the necessary paperwork for you and there will be no hidden fees for you to pay once the sale is complete.
Contact Property Rescue to see how much your home is worth. There is no obligation to proceed, but a superfast sale could mean you avoid being let down by potential buyers' being affected by the new rules.