Changes to UK mortgage market bring it closer to Mortgages in Spain

Announced today by the regulatory body covering UK lending were new rules that must be implemented when a Bank assesses an applicant for mortgage purposes.

What are the changes to how mortgage applications will be approved

The two key changes are a move away from gross income multipliers to looking at affordibilty based on actual incomes and outgoings and the introduction of a benchmark interest rate of 7% against which all applicants must be assessed to allow for future rate increases.

How do applications for mortgages in Spain currently work

For years Spanish Banks have worked to affordibilty ratios based on net incomes as shown on personal tax returns versus outgoings on debt and loan repayments. In general terms each Bank looks to see that outgoings do not exceed on average 35% of incomes. The documents required by a Spanish Bank will reflect the need to check expenditure in these areas.

Whereas the Spanish Banks only take into account expenditure on debts, it is reported that UK lenders will also be required to take into account all outgoings which could include things like Gym membership, Pension contributions and telecommunication contracts.

Why the changes to mortgage assessment

Whilst it could be argued that working to affordibilty ratios has not helped the default situation for Spanish Banks this is against a background of severe and unusual economical turmoil and the situation could of been worse had affordibilty ratios not been the key underwriting tool. The changes in the UK are to ensure that mortgages are granted without stretching the applicants resources to breaking point should rates increase or the mortgagees situation change.

Will the changes dampen the housing market in UK

It is possible the new restrictions could depress demand. A tighter mortgage market with less flexibilty on criteria has certainly had an impact on overall lending in Spain.  For UK residents however a mortgage in Spain remains normally attached to the purchase of second home and not a main residence, the impact of the new rules will be more profound where linked to what is a primary residence.

Read the full article: Changes to UK mortgage market bring risk assessment in line with Spain