[Closed] MMR Mortgage - What a difference, but not sure why...

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.

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.

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?

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.

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.

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 [b]ANOTHER[/b] £15k further behind.

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.

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 [i]should[/i] 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

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.

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.

[url= http://www.bbc.co.uk/news/business-27407561 ]Interest rate rise? [/url]

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

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.

greedy sellers

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?

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.

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.

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 [u]MORE[/u] valuable than it was, so, in their mind we're actually getting a good deal, because they have only [b]INCREASED[/b] the price by £5k over that time...

Madness.

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).

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.

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.

Then that makes it a bit more tricky!

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

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?

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.

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).

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.

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?

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.

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.

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.

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.

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)

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.

"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.

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

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%.

£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.

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?

North Bristol then, I guess...

Aye. North East.

Move South! 🙂

I'm a northerner...this is as far as I go!

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."

If your credit card debts take you from 85% to 90%LTV I'd put them at around £17K (5% of 350K). To be blunt, as you seem to be, you can't afford a 85% LTV, so accept a 90% LTV or save up some more.

Wow that’s high! Even when we were both FT our monthly bill was 854 for our first. That was a childminder though. Not sure what nurseries cost in our area as I didn't look at any (not many that I could get to with the times we needed and those I could didn't have a great rep).

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

Different debate though I'm with MrsF on this (and welcome back 🙂 )

tonyg2003 - Member

If your credit card debts take you from 85% to 90%LTV I'd put them at around £17K (5% of 350K). To be blunt, as you seem to be, you can't afford a 85% LTV, so accept a 90% LTV or save up some more.

No, my £4K of credit card debt simply moves me off the 85% LTV step. It changes the LTV to 86.5%, but it's a step change that moves you directly onto a 90% LTV Mortgage; there is no in-between value.

By paying off the £4k of debt, I will be allowed to borrow more, true, but not much more as the monthly repayment minimum is usually around 3% (i'm guessing here as I don't know) which equates to around £120pm. By reducing my LTV I'm going to have to pay an additional £300pm in mortgage interest...

Over two years, the money saved in interest alone by NOT clearing the cards is enough to actually clear the card debt.

I'm not arguing the point that having the card is a detriment to the total amount I can, borrow; what I'm arguing, is that surely a lower LTV (more personal equity in the property) is a bigger +ve point than the card debt is a negative. Don't you agree?

Apologies, I am quite blunt.

A quick Google suggests that of the 5 nurseries near to me, the Day rate for 2-3 year olds ranges from £47-£58 per day. I pay £50.

Childminder rates start at £4 per hour. for the same TnCs as my nursary, that would only save me £7.10 per day or £140 per month. Considering, that not many accept Childcare Vouchers...the difference is negligible.

There's also more reliability in a nursery, sickness, holiday, etc.

No denying it's expensive, but that's the cost of childcare in Bristol.

I'm not arguing the point that having the card is a detriment to the total amount I can, borrow; what I'm arguing, is that surely a lower LTV (more personal equity in the property) is a bigger +ve point than the card debt is a negative. Don't you agree?

That then comes back to how the lender judges things - LTV vs. affordability when offering a loan, as this is the step you're falling over on.

So you're back to saving more or shopping around I'm afraid. Your logic is sound, but it's not me you have to persuade 😉

Having lived on a 6% mortgage of £197000 for 5 years I'm proof it's possible to live at what might seem 'beyond your means' but it does mean sacrifices in other areas of your life. If you can live with that (home for life and all that) then go for it (when you get the chance!).

Most childminders do accept childcare vouchers FWIW - or at least those doing it properly (eg declaring income, etc) at least IME since that was one of the things we asked.

To get back to the OPs point, we've just had the underwriter significantly reduce the amount the bank had agreed to lend us. Apparently using the new rules they are making some very conservative assumptions about the state of the economy and our earnings five years from now.

I hope that we've picked a very conservative lender, and so will be shopping around for other options.

I've been told that there are many people in the same boat, and now really wished we'd found the right house three months ago!

Any childminder should accept all vouchers, it's dead easy to set up (have just gone through it again as have changed cm). you are right on the reliabilty / sickness etc.

But we're sidetracking (although that £140 a month may tip the balance for a lender?) 😉

ps thank you nemesis.

Got my last mortgage 7 years ago but used an IFA then to get best deal, would one not help with finding the most generous lenders? I suppose there's a cost to using one now.

I've been told that there are many people in the same boat, and now really wished we'd found the right house three months ago!

I suspect you'll find the recent bounce with asking prices was people trying to get in before the lending restrictions - which sellers and estate agents took advantage of, hence people overpaying.

With MMR now in place, further lending restrictions likely to come in June and interest rates rise(s) poss early next year, you'll likely find yourself in a stronger position in 6/12 months time when it comes to negotiating the price down as sellers will not be in such a strong position (fewer buyers able to borrow so much) + you'll presumably have a bigger deposit saved.

This might well mean you get to pay less because you've waited..

Not having a go, but it's sentiment like the one you've expressed that estate agents and sellers have been exploiting these last few months...

Apologies, I am quite blunt

I like blunt. Good luck with your application. It does seem crazy change in loan amount offerred. I think that this might be just your lender saying "we don't want you". Time to move on and find a more flexible lender.

brooess - Member
I suspect you'll find the recent bounce with asking prices was people trying to get in before the lending restrictions - which sellers and estate agents took advantage of, hence people overpaying.

With MMR now in place, further lending restrictions likely to come in June and interest rates rise(s) poss early next year, you'll likely find yourself in a stronger position in 6/12 months time when it comes to negotiating the price down as sellers will not be in such a strong position (fewer buyers able to borrow so much) + you'll presumably have a bigger deposit saved.

I totally agree that what you're saying is what [i]should[/i] happen, but will it?

We were looking for a house (in another part of the country) in 2010 and found that the vast majority of sellers were holding out for the valuations the estate agents had given in 2008/9. If the offers were well below this, they simply removed their properties from the market until things "got better" or rented them out.

My (admittedly) limited experience of the property market seems to indicate that lenders and buyers are forced to reassess their circumstances immediately in response to changes in rates, values, lending criteria. Vendors take a LOT longer to adjust to a changing situation which reduces the perceived value of the home they're currently in.

This is especially true of those who've moved house in the past 8 years.

Generally (and purely from an observers POV), what seems to happen is that rather then devaluation, you have a market contraction (less properties for sale) but those properties which are are still for sale are selling at the value established in the boom times, thereby establishing a precedent. There are always just enough people, who've managed to get money/means together to meet the market, and just enough properties for sale to furnish them.

This is from both experience and observation.

I've given up hope that the market price will reduce more than a few percent.

I've given up hope that the market price will reduce more than a few percent.

Well I'm wondering that too, but no-one expected the crash in 2007/8 nor the earlier one in the early 90's... and many senior and sensible people are going public at Gideon to stop ramping up prices, because any shock to consumer confidence right now from a fall in house prices will kill the 'recovery' stone dead

One sure sign of a bubble is that everyone expects prices to keep going up...

no-one expected the crash in 2007/8

Not sure about Bristol but in London the 2008 "crash" consisted of prices dropping by up to 15% at most, then two years later completely recovered and heading up ever since ([url= https://uk.finance.yahoo.com/news/london-property-market-in-graphs-165123211.html ]source[/url]).

Not much of a crash, and as long as you weren't planning to move for two years you were laughing even if you bought at the height of the peak before the crash.

My opinion is that if you are looking to buy in a desirable area then it is always better to buy sooner rather than later.

Bath:

[url= http://www.home.co.uk/guides/house_prices_report.htm?location=bath&startmonth=02&startyear=2006&endmonth=02&endyear=2014 ]Bath - House Prices 2006 - Present[/url]

Bristol:

[url= http://www.home.co.uk/guides/house_prices_report.htm?location=bristol&startmonth=01&startyear=2006&endmonth=02&endyear=2014 ]Bristol House Prices 2006 - Present[/url]

During my recent house purchase, my student loan came into question as an affordability factor as it was deducted from my salary and showed up on pay slips. This wasn't an issue until the underwriter picked up on it and reduced the amount I could borrow.

Luckily I could pay that £7k debt off and continue with the purchase.

Ask your mortgage provider exactly what it is that has reduced what they will lend you. As has been said before, different lenders have different criteria which changes all the time.

It this the governments way of cooling the market without actually putting the interest rates up to stop the housing bubble from popping before the next election.

They can't afford to risk a real interest rate rise or the country will be on it's knees.

After all they own a lot of the banks now if the market crashes all the property on the balance sheet could take them down.

I'm in the middle of a house purchase and the lender is asking all sorts of questions, and the whole process is taking longer. I have no loans, no debts, no credit cards, not selling anything, a 30% deposit and want a mortgage of £100K, which is considerably less than half what I could've borrowed and still it's taking ages! Not satisfied with 3 payslips and 4 bank statements to prove who pays my salary, they also want direct proof from HR, who are massively understaffed and a bit crap so haven't got round to it.

We just went through 'new system', without it being official as Leeds wanted to inflict it on someone it seems - and it was our unlucky day.
In the end, it made no difference to what we were offered. And common sense prevailed that the mortgage is £120 a month less than we were paying in rent for the last year, and same as we were paying for the last 6 years on 30% less salary.
I also agree that house sales/prices are bearing no resemblance to reality in some ways up here. I think people look at Zoopla price guides and assume it is correct. Or as someone mentioned earlier - a house not sold for 5 years as appreciated in value apparently - we bid on one here, and were told to offer more...
The one we just got keys to last week had also marketed at 'offers over £190k', but neither they or estate agent 🙄 appreciated that in new / old scheme most lenders will only lend on the lowest figure of valuation/offer/marketed figure. Anything more is out of your deposit, pushing up LTV or deposit size. So their expectation that they should get £220k+ for that house was quickly scuppered....