Since the Financial Conduct Authority (FCA) conducted the Mortgage https://www.beaconfinancialtraining.co.uk/wp-content/uploads/2020/06/cemap-online-and-classroom-training-uk.jpget Review (MMR), there have been many additional checks and changes to regulation that lenders have implemented into each of their individual mortgages processes.
One of the key things that came out of the MMR was the need for responsibility and duty of care, with the lenders having to ensure that anyone applying for a mortgage could comfortable afford to maintain the repayments, both currently and in the event of any future rate increase. There was a keenness to ensure that lenders did not revert back to lending irresponsibly.
As a mortgage adviser, you need to satisfy yourself that your customer has the income to maintain existing commitments, as well as the proposed new mortgage. The affordability calculation needs to be processed in all borrowing circumstances, whether first-time buyers, home movers or those wishing to remortgage from another lender.
How is income proved?
It is not simply a case of asking your customer about their income, it must be proven when completing an affordability calculation. You will need to document that you have seen payslips if self-employed, as well as checking with each employer if more than one job held.
Generally of self-employed, lenders will want to look at the last three years’ accounts or tax returns. If the customer wishes to include additional income, such as bonuses or pension, again documentary proof will be required. You will need to establish during the interview if they anticipate a decrease in their income, or increase in their outgoings.
As a qualified mortgage adviser, you also have a duty to correctly assess your customers existing commitments to ensure that they can maintain them. From how many credit agreements (loans, credit cards, unsecured finance, etc.) they have, down to the number of children, who as any parent will confirm are very expensive.
The staple outgoings of household utilities and food, along with other expenses such as clothes, toiletries and child care, are also factored in.
All of the customer’s commitments will be used to complete the affordability calculation. As an additional part of the sum, the lender will generally incorporate a prediction of potential rate increases spanning the next five years and assess that, if this were to happen, could the client still comfortably afford to maintain all of their repayments and commitments.
It is still important to make sure that you convey to your customers that there is a possibility that rates may increase by more than the level the calculation uses.
When your customer submits their mortgage application, one of the topics to be discussed is how long they wish for the agreement to run for. Depending on their age at the time of the application, it may be that the mortgage will continue past their retirement.
How a lender views this will vary, although many will ask for proof of your post-retirement income, such as pension details, investments or proof that your current employment will continue past the current state retirement age.