The mortgage industry has undergone a unique series of changes over the last decade. New regulations, for example, have been set in place following a serious default crisis, which brought lending to its knees. Risky practices, it seems, came around on the industry, creating a domino effect that has taken years to reverse. And while high levels of oversight are designed to protect borrowers, the changing landscape of mortgage lending actually hinders buyers, at times.
As the mortgage industry continues to evolve, home buyers and remortgagers must adapt to new conditions. What worked a decade ago may not be an option any longer. Conventional wisdom about the best mortgage approach has changed, so if you are in the market for funding, your expectations may also require adjustment.
History Sets Future Pace
Like other financial markets, the mortgage lending industry responds to general economic conditions and regulatory requirements. Mortgage interest rates and terms are based upon prevailing conditions and the loans are governed by industry regulations. So as economic indicators ebb and flow, lenders act accordingly. Unfortunately, the system was tested with recent crises.
Before the financial downturn, lenders operated in a robust market, where houses changed hands frequently and mortgage financing was in-demand. As a result, qualified buyers were able to take out high loan-to-value mortgages to cover home buys. Under the conditions they were extended, the mortgages were manageable. But things changed.
As house prices fell, many of those with expensive mortgages found their homes were no longer worth as much as their loans. One by one, home owners found themselves with negative equity. Once “underwater” the circumstances were further complicated for many borrowers, who faced additional financial pressure alongside their home devaluation. Lost jobs and slowed earning potential left many unable to pay, as each negative outcome fed the next. The subsequent downward spiral had global implications, which ultimately led to changes in the way loans are administered.
New Rules for Lenders
The mortgage industry is not alone facing new regulation. Payday loans and other forms of financing have also come under review, leading to changes. Various forms of financing are evaluated on Readies, to help borrowers weigh their options. Whether you are shopping mortgages or other loans; expect to see a different set of regulations than you did in the past.
Lenders are now required to undertake full-scale affordability checks for every loan they make. Though it would seem like common sense, reckless practices have prompted oversight agencies to make laws ensuring safe standards are in place. Your credit references and earnings are central factors determining your ability to borrow money. The new regulations ultimately influence how much you’ll be approved for and other terms tied to your mortgage. The application process also takes longer than it once did, further slowing your path to needed financing. The built-in lag thwarts over-eager lenders, but it can also interfere with your home buy. In addition to your financial ability to repay your mortgage, lenders look at other factors, as well.
Age Is a Factor
Mortgage seekers over the age of 40 are also experiencing unique conditions as they seek financing. Older borrowers have fewer employment years left to earn money toward repayment, so lenders need further assurances when issuing funds to aging applicants. Beyond the standard affordability checks, those over forty are called upon to prove they’ll meet obligations as they near and surpass retirement age. While lenders prefer to establish terms that enable mortgage holders to satisfy repayment before retiring, they will consider financing well-qualified applicants beyond retirement. Demonstrating guaranteed income from State Pension and private pensions is required of qualified applicants paying beyond retirement.
Though you’ll find access to funding that extends beyond your years of employment, most mortgages impose age 75 as the cut-off limit. For borrowers in their 50’s, this adds-up to higher payments and more substantial mortgage deposits.
Home buyers and remortgagers face new standards within the mortgage industry. Though most new rules do not hamper well-qualified applicants, it is important to account for the regulations as you plan for financing. Older individuals, especially, may need to adjust their expectations.
