The Mortgage Market Review (MMR) introduced last April has brought stricter lending rules for borrowers who now have to provide very detailed information about their monthly outgoings to convince their lender to extend them a loan.
While in the first months after the MMR launch many would-be buyers were held back, a year after the changes borrowers seem to have found ways to tackle affordability issues. On paper at least.
New research by comparison website MoneySuperMarket found that a fifth (20 per cent) of consumers planning to apply for a mortgage in the next three years will use cash more frequently to hide some of their expenditure from lenders.
More than a fifth (21 per cent) of prospective borrowers plan to increase spending on their credit cards and then pay off the balance at the end of each month. This way they are aiming to maintain a healthier balance in their current accounts, which would raise their credibility as borrowers.
The number of people who would not resort to tricks but rather change their spending habits to improve their borrower profile is bigger.
A quarter of consumers said they will restrict their spending by £159 on average, by cutting back on non-essentials, and nearly a third (29 per cent) plan to clear off all debt before applying for a mortgage.
The study also revealed a worrying statistic – almost one in ten (eight per cent) of consumers had never heard of the new MMR rules.
Kevin Mountford, head of banking at MoneySuperMarket, comments:
“Paying off debts is always a good way to start when it comes to applying for a mortgage as existing borrowing will be taken into account by a lender when it comes to your application. Reducing the amount you spend each month could also help when it comes to the amount a lender thinks you can afford to borrow. But those trying to ‘play’ the system should exercise caution as lenders may still require you to prove where your cash goes. Using a credit card to hide your spending may also count against you as lenders have access to your credit report, so will be able to see a real-time snapshot of your credit card balance at any time within the month.
“Research and shopping around for the best deal is an essential first step when applying for any mortgage And don’t forget, you need to look beyond the rate of interest to the fee as well, as this can significantly impact the total cost of the mortgage over the term of the deal.”
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