Thursday, November 12, 2009

Want a mortgage ? - Tell us how much you drink !

Calls from the FSA for more rigourous affordability checks on applicants that are applying for mortgages, including having to declare in much greater detail personal spending habits and socialising.

I would have thought that lenders, if they are asking to see some bank statements, would be able to see at a cursory glance whether people are drawing lots of cash, or spending lots in restaurants etc. I had a client not so long ago for a mortgage in Spain who had daily debit transactions on his bank statements for an online poker site. Not a crime by any means, but it's a potential risk for a lender.

The other thing in Spain and France which seems to be tighter, is that the concept of lending 5 or 6 times gross income is completely alien. Lending tends to be limited so that the combination of all credit payments for the applicant, are no more than about 35% of the monthly net income.

So, if you earn £2000 per month, then the maximum credit payments you can make are £700. If you have £400 a month already on a loan and credit cards (say) then that leaves £300 available for a mortgage payment.

There are no perfect solutions, and Spanish banks made many other errors in the past few years. But if a system like this is managed well, then it can also stop ridiculaous growth in house prices.

No comments: