Viewing 40 posts - 1 through 40 (of 62 total)
  • MMR Mortgage – What a difference, but not sure why…
  • Daffy
    Full Member

    Dr D and myself went through a mortgage application in January, and were offered in excess of £350k of borrowing. Now, in May, and with the only change in circumstances being that we actually earn about 10% more than we did, the new MMR rules have reduced that borrowing level to <£150k.

    Both jobs are permanent, we have minimal debt, (a CC each, but not more than a couple of £K between them…and that only due to saving for the deposit) We do have a 2.5yr old, which is a significant cost, and a student loan each, bu no loans, cars, store cards, or any particular extravagance at all.

    Even with a significant deposit, this means we can’t buy anything of appropriate size in Bristol/Bath or the surrounding area. the only thing we can do is look at being 25 miles+ outside of Bristol or over into Wales. The fuel cost would be more than quadrupled in doing so…

    I genuinely don’t understand…can anyone explain? We’ve been VERY careful in selecting properties than we believe we can afford even under the worst of circumstances (interest in excess of 7% and one of us unemployed) before considering any property, but this literally rules out everything with more than 2 bedrooms.

    nedrapier
    Full Member

    Oh, bum. Got an approval in principal earlier this year. Just expired.

    Was hoping we wouldn’t be affected, as we have very few fixed outgoings outside the “essentials” – rent, council tax, utilities, mobile phone, broadband, credit cards get cleared each month, no other debt.

    Expectations in check now, though, thanks. 😕

    Good luck searching, Daffy.

    grahamg
    Free Member

    Just wait until either wages go up or prices come down or you’ve a bigger deposit saved or something else to narrow the gap – just because it’s not affordable now, doesn’t mean it never will be at any point in future. Buying isn’t obligatory believe it or not.

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    jekkyl
    Full Member

    I work in the industry.
    lots of reasons but the main one is your lenders criteria, so try another one. Unless you have an existing deal and tied in?

    it might due to your monthly payment based on the term selected. If you’ve told the advisor that you wish for a 20 year term for eg (with good reasons why) and then working that against the budget you’ve given for the mortgage payment then that might reduce the size of the loan available to you. Ask for the term to retirement and give the biggest budget you can afford. You can always reduce the term later on or make overpayments which would reduce the term anyway.

    Have you asked them why the loan available has been reduced?

    bigblackshed
    Full Member

    I think your 2nd paragraph hits the nail on the head.

    Both jobs are permanent, we have minimal debt, (a CC each, but not more than a couple of £K between them…and that only due to saving for the deposit) We do have a 2.5yr old, which is a significant cost, and a student loan each.

    The CC will be a sign that although you have been saving you are still spending, and childcare costs are a fixed outgoing, even though you wouldn’t have to pay them if one of you were unemployed.

    Lenders are now being over cautious, rightly or wrongly depends on if you want a big mortage or not, and are at least on the surface trying to appear responsible with their vetting process.

    pictonroad
    Full Member

    HSBC offered me £65k when we went to remortgage. I phoned town and country brokers later that day and doubled the loan value (different lender) with no other changes to conditions. The broker echoed Jekkly’s point, the biggest factor will be the lender’s conditions, try other lenders.

    Daffy
    Full Member

    grahamg – Member
    Just wait until either wages go up or prices come down or you’ve a bigger deposit saved or something else to narrow the gap – just because it’s not affordable now, doesn’t mean it never will be at any point in future. Buying isn’t obligatory believe it or not.

    That’s an interesting point of view, but I think you’re living in a dream world if you believe that wages will increase inline with property prices.

    Even during the housing market “crash” prices around Bristol and Bath were barely affected. The market slowed considerably, but prices have remained largely flat….until recently. Bristol house prices increased by 5.4% in the last 6 months, Bath slightly less at 4.2%. If you plot those figures overs a year, even factoring in a rate rise, you’re still looking at 8-10%. My wages will not increase by 10% in a year and even if they did, the house that I was looking to purchase is now £30K more than it was, whilst our joint earnings have increased by less than £8k. That means under the current multiples, I’m now ANOTHER £15k further behind.

    Flaperon
    Full Member

    Student loan had a massive impact on what the bank was prepared to offer me. Although technically it’s not a debt they can hold against you, what they did in my case was take the monthly repayments into consideration in their affordability test.

    If you can afford to, pay it off.

    brooess
    Free Member

    As a first time buyer living in London but currently priced out and having to look at the (boring) suburbs, I see this as a good thing. True, I won’t be able to borrow so much, but I don’t like debt anyway. The medium to long term effect should be a stabilisation of house prices and an end to estate agents getting away with open days, sealed bids and offers over the asking price to greedy sellers… because buyers can’t raise the silly prices they’re asking for.

    So yes, harder to get the ££, but in time, you won’t need to borrow so much in the first place – which is better overall as you’ll pay less over your lifetime

    Daffy
    Full Member

    brooess – Member
    As a first time buyer living in London but currently priced out and having to look at the (boring) suburbs, I see this as a good thing. True, I won’t be able to borrow so much, but I don’t like debt anyway. The medium to long term effect should be a stabilisation of house prices and an end to estate agents getting away with open days, sealed bids and offers over the asking price to greedy sellers… because buyers can’t raise the silly prices they’re asking for.

    So yes, harder to get the ££, but in time, you won’t need to borrow so much in the first place – which is better overall as you’ll pay less over your lifetime

    The vast majority of sales in central London and the surrounding Burroughs are cash sales, which means that more stringent mortgage criteria, will only hurt those most in need of help.

    Open day sales and sealed bids are becoming common here in Bristol too. I refuse to get drawn into it; As soon as I hear that someone else has placed an offer that’s even close to what I’m considering, I’m out.

    nedrapier
    Full Member

    greedy sellers

    Greedy, geedy sellers, trying to get the best price on the most expensive thing they’ve ever sold. Sellers are buyers too…

    I’m in exactly the same position as you, for what it’s worth. Trying to get moved this summer before we’re looking at having to sign up to another rental term.

    brooess
    Free Member

    Interest rate rise?

    This’ll put a dampener on things… not just the amount people can afford to repay in mortgages but it’ll increase the size of the repayments for all the credit card and car finance debt people appear to be living off – more pressure on what they can borrow

    grahamg
    Free Member

    Daffy – That’s an interesting point of view, but I think you’re living in a dream world if you believe that wages will increase inline with property prices.

    Even during the housing market “crash” prices around Bristol and Bath were barely affected. The market slowed considerably, but prices have remained largely flat….until recently. Bristol house prices increased by 5.4% in the last 6 months, Bath slightly less at 4.2%. If you plot those figures overs a year, even factoring in a rate rise, you’re still looking at 8-10%. My wages will not increase by 10% in a year and even if they did, the house that I was looking to purchase is now £30K more than it was, whilst our joint earnings have increased by less than £8k. That means under the current multiples, I’m now ANOTHER £15k further behind.

    Fair point. But if wages aren’t going up, what is driving prices? Are you suggesting that prices will just keep going up and up and up in the face of stagnant (or real terms falling) wages? That’s happened in recent years due to seriously lax lending, but as this thread demonstrates, that’s starting to change so where is the money going to come from now to drive more price increases? Lower interest rates?(!)
    I know there’s a supply issue, but as history shows, housing market is far more complex than just supply and demand. I’ve got mates who had relatives screaming at them ‘buy now or you’ll never be able to afford a home’…. that was in 1989, so saying the same thing now kind of flies in the face of common sense.

    mikewsmith
    Free Member

    greedy sellers

    were once buyers, and are now buyers again trying to get as far up as they can in a market that is rising too.

    ebygomm
    Free Member

    With the new lending criteria do they evaluate travel costs, e.g. traditional advice is to move further away so can afford somethong. Will the new lending criteria look at travel costs and reduce the amount accordingly or is it just based on current outgoings?

    Daffy
    Full Member

    grahamg – Member

    Fair point. But if wages aren’t going up, what is driving prices? Are you suggesting that prices will just keep going up and up and up in the face of stagnant (or real terms falling) wages?

    I think housing prices will, eventually, stagnate, but not drop. My experience is that those with familial wealth are tapping those funds to get onto the property ladder in the mid ground, with FTB being forced into the smaller, newer homes or homes in bad areas, at inflated prices, thereby propping up both the bottom of the market and the mid market.

    Daffy
    Full Member

    ebygomm – Member
    With the new lending criteria do they evaluate travel costs, e.g. traditional advice is to move further away so can afford somethong. Will the new lending criteria look at travel costs and reduce the amount accordingly or is it just based on current outgoings?

    It’s based on current spending, not projected. So lenders, will evaluate what you’re currently spending, and estate agents will tell you what you can afford, showing you things further out…but no-one will check how much your fuel, overtime, car costs, insurance, will alter by being further out or in a bad area. It’s ridiculous.

    Daffy
    Full Member

    brooess – Member
    Interest rate rise?

    This’ll put a dampener on things…

    Sadly, that’ll be mostly FTB that are hit the hardest. Those with the least equity, have the poorest rates, any rate rise reduces what they can spend monthly, but house prices won’t drop…they’ll stagnate.

    We’ve looked at a house that’s been on the market since 2012, the vendors have refused every offer on the property, holding out for the estate agents inflated appraisal price. Their reasoning is that it’s a rising market, so the house is now MORE valuable than it was, so, in their mind we’re actually getting a good deal, because they have only INCREASED the price by £5k over that time…

    Madness.

    konagirl
    Free Member

    I am not an expert or in the industry, but I would think that having a couple of k on credit cards, assuming you mean you don’t pay that off every month in full, will be affecting your outcome more than student loans. Get them paid off in full every month. Saying you need to raise a deposit by getting into debt doesn’t bode well in the ‘affordability’ stakes. Sorry if that sounds harsh and if I have mis-read then even more apologies!

    +1 for trying different lendors and for extending the term. YBS (or at least the advisor we got) were excellent in understanding their own system and putting us on a 30 year loan to increase the amount we could borrow, whilst retaining the same monthly payment (and hence affordability in the bank’s eyes).

    Daffy
    Full Member

    Just to confirm – I’m not spending on the cards to raise a deposit, They’re cards with 0% interest which we historically spend on and then cleared at the end of the 0% period, placing the money which we would other wise have spent into savings, thereby MAKING money. From many standpoints it doesn’t make financial sense to pay them off. Paying them off would reduce our available deposit from the 85% LTV band into the 90%LTV band, which means a rate jump of 1% equating to an increase in repayment of £250-£300 a month.

    brassneck
    Full Member

    Just to confirm – I’m not spending on the cards to raise a deposit, They’re cards with 0% interest which we historically spend on and then cleared at the end of the 0% period, placing the money which we would other wise have spent into savings, thereby MAKING money. From many standpoints it doesn’t make financial sense to pay them off.

    They don’t know that from the raw data. Pay the cards off so you can put 0 in the box. Don’t give a system an excuse, ever.

    I had nearly £100,000 on cards in the good old days of stoozing 🙂

    Paid them off well before moving though, to make sure it filtered through to Experian et al, and cancelled all but two cards, one Visa one Mastercard. With nothing owing on them.

    konagirl
    Free Member

    Then that makes it a bit more tricky!

    Good luck. As has been said, try different lenders and terms of loan.

    tonyg2003
    Full Member

    getting reduced from £350K to £150K is a massive jump. As other people have said here the MMR mortgage readjustment probably takes into account your CC debt and childcare costs and possibly a lower multiple. It looks like your CC debt is the only way to change the MMR valuation. However if you can’t afford a 1% or £250-300 increase on the £350K mortgage level perhaps it’s time to re-evaluate how much to borrow?

    Daffy
    Full Member

    tonyg2003 – Member
    However if you can’t afford a 1% or £250-300 increase on the £350K mortgage level perhaps it’s time to re-evaluate how much to borrow?

    There’s a significant difference in being able to afford something, and being willing to pay something; I don’t want to throw away £18000 over 5 years.

    tonyd
    Full Member

    Those CC debts will be a red flag IMO. I doubt a lender will look at the terms and work out that you’re playing the interest rate game, they just look at the debt each month and the fact your making minimum payments. When we were looking to buy we had no credit cards (no debt at all), our mortgage advisor suggested we get one each and use it regularly, paying it off in full each month. This improved our already good credit rating as rather than not showing up on any credit scoring we were showing up as good borrowers.

    Regardless of that though, it sounds like it’s just the MMR bit that’s changed for you? Its a bummer, no doubt about that, however long term it should hopefully be a good thing. We need some balance between incomes and house prices, ideally a massive drop, but more likely stagnation until wages catch up (assuming this change puts the brakes on the already over-heated market).

    stumpyjon
    Full Member

    Being a bit old fashioned I’d apply the 3.5 times your salary rule (3 x joint). Based on that you both need to be on £100k per annum to be able to afford your mortgage with one person unemployed, or £116k joint gross to afford a £350k mortgage. Monthly repayments over 25 years would be around £ 1800 per month at current rates.

    If you’re not somewhere close to those earning figures I’d agree with your lender.

    Caveat, I was lucky and moved in 2001 before it all went stupid when 3.5 a reasonable salary still bought a reasonable house. Since lenders ignored those rules and started lender 4,5, 6 times salary the price of same house went up to 4,5,6 times salary. I think you’re trying to move before the market has readjusted itself due to the reduced amount people can borrow (houses are only worth what people are prepared to pay for them which for many is directly linked to what they can borrow), unfortunately the downward adjustment of house prices will be very slow and very painful and may not happen so only people who inherit or are supported by their parents will be able to get onto the housing ladder.

    mrsflash
    Free Member

    Childcare costs will be a big factor too, are you doing all you can to reduce them eg both claiming the max childcare vouchers? Will your bill reduce in 6 months when child gets their 15 free hours?

    martinhutch
    Full Member

    Try a different lender. All of them have developed different lending models based on circumstances – some will place less weight on your particular risks.

    Have you tried your current account provider? They can use account data in applications, I believe, which might allow you to demonstrate how prudent and solvent you are.

    It may be a mercy if you really were going to borrow to a maxed out £350K, that said. Interest rates are going to go up significantly in the next five years.

    nemesis
    Free Member

    First time buyer or do you have a deposit/equity?

    I’ve recently done it with Yorkshire BS and was told that how stringent the tests are very much depends on how much deposit you’re putting down.

    As has been suggested though, try with different companies. FWIW, I’ve found YBS good, particularly with an offset account given the negligible return on savings at the moment.

    martinhutch
    Full Member

    I’ve heard from my other half (who develops this kind of model) that it is a bit of a strictness lottery from lender to lender and a few are still dishing out the cash like there’s no tomorrow.

    vinnyeh
    Full Member

    I’ve recently done it with Yorkshire BS and was told that how stringent the tests are very much depends on how much deposit you’re putting down.

    I’m surprised by that- I thought that the driver for the changes was repayment affordability for the purchaser, not risk to the lender.

    nemesis
    Free Member

    Who knows. That’s what I was told and having done the application shortly before the rules came in and shortly after, I did have to provide a bit more detail but not a huge amount more and the end figures of what they were willing to lend us were identical (and still silly IMO though I guess we could afford to pay them)

    Daffy
    Full Member

    stumpyjon – Member
    Being a bit old fashioned I’d apply the 3.5 times your salary rule (3 x joint). Based on that you both need to be on £100k per annum to be able to afford your mortgage with one person unemployed, or £116k joint gross to afford a £350k mortgage. Monthly repayments over 25 years would be around £ 1800 per month at current rates.

    Just to be clear, we were offered in excess of £350k, but we had no intention of borrowing that much. We’ve been looking at houses for sale of around that much, but aiming to make a substantial deposit contribution of around 15%. This puts your thinking in an around my own with a multiple of around 3.5. Sadly you’d be surprised at what that buys you around here.

    trail_rat
    Free Member

    “but aiming to make a substantial deposit contribution of around 15%.”

    unfortunantly that is not substantial….while the number will be substantial few thousand thats barely above minimum % deposit for quite alot of lenders. so minimum deposit coupled with carrying a bit of debt is a fair old red flag.

    “with FTB being forced into the smaller, newer homes or homes in bad areas, at inflated prices, thereby propping up both the bottom of the market and the mid market.”

    as its always been , my parents didnt rock out and buy a nice large house in a lovely area straight away , they bought a small 2 bed in a less desirable area that they could afford before selling up and buying their current house.

    jekkyl
    Full Member

    Forgot about income multiples, all lending is based on affordability now.

    Daffy
    Full Member

    mrsflash – Member
    Childcare costs will be a big factor too, are you doing all you can to reduce them eg both claiming the max childcare vouchers? Will your bill reduce in 6 months when child gets their 15 free hours?

    We are. Both of use are claiming the maximum £243 each afforded by our respective employers, and I’m in discussions with my employer to work a long hours four day week. Sadly childcare costs are ~£1100 a month before reductions. Yes, massively looking forward to the 15 free hours! coupled with the day at home and the childcare vouchers, I believe it will reduce our childcare costs by almost 65%.

    nemesis
    Free Member

    £1100! 😯

    I’m in Bristol too and that seems very high! Not maybe relevant to this other than to ask whether there are cheaper options out there (and I know that’s emotive given it’s kids but my experiences with mine says that what you pay has little direct correlation to how good the service you get is.

    Daffy
    Full Member

    nemesis – Member
    £1100!

    I’m in Bristol too and that seems very high! Not maybe relevant to this other than to ask whether there are cheaper options out there (and I know that’s emotive given it’s kids but my experiences with mine says that what you pay has little direct correlation to how good the service you get is.

    We looked around, trust me! By the time, food, nappies, dropoff/collection, facilities, events etc were all taken into consideration, there was about 10-12% in it.

    Obviously, a childminder would’ve been cheaper, but then who watches the watchmen?

    nemesis
    Free Member

    North Bristol then, I guess…

    Daffy
    Full Member

    Aye. North East.

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