A Cut in Mortgage Borrowing Limits.

by Mark Johnston

A Cut in Mortgage Borrowing Limits.

Mortgage lending within the British economy is on the rise as lenders continue to cut rates, according to the bank of England.

A quarterly survey from the bank of England also revealed that British banks are to also planning to increase the supply of mortgages in early 2013.

Recent figures have also shown that UK mortgage approvals rose to 55,785 in December 2102, which is the highest level since January 2012.

However, it seems that mortgage lenders have now to penalise parents as they have decided to take the cost of bringing up children  in to account when deciding on mortgage affordability.

Parents applying for a mortgage or even a remortgage can now expect to be asked about school fees, childcare costs and also lifestyle expenditure.

Therefore  families are being warned that they could face a reduction in the amount they can borrow, this is mainly due to rising childcare costs.

According to research by insurers Liverpool Victoria (LV) the cost of raising a child has reached a new high of £222,458. Childcare costs alone now average £63,738 which is higher than a decade ago when childcare cost just £39,613.

Some experts have warned that the impact of the lenders decision to include the cost of bringing up children can be huge…

For example: HSBC would offer a couple both earning £25,000 without children a mortgage of around £224,000. Although they would offer a couple with identical financial circumstances but with a child and therefore childcare costs of around £1,000 a month just £65,000, which is around 75 per cent less.

An HSBC spokesman, said “all our mortgage lending decision are unique and based on individual customers circumstances. We do not treat families, couples or single customers any differently as affordability is the key”.

Lenders have always undertaken a check on affordability when they assess for the amount they will lend to a borrower. However, lenders have now produced a more robust and individualised figure by applying affordability models which is in line with the Financial Service Authority (FSA) post credit crunch market review.

An Nationwide spokesperson also added that “a couple with children will have extraordinary different outgoings compared with a couple without children. When assessing affordability we take this in to account”.

David Hollingworth of brokers London and Country, said “affordability has been a key part of the regulation review and so borrowers will find that they need to account for their monthly budgeting in more detail than before”.

The Council of Mortgage Lenders (CML) has also acknowledged that many lenders are now increasingly taking this approach and add that “lending has become more sophisticated which was inevitable given the change in the regulatory requirements”.

Carol Begbie of mortgage broker Female Independent, stated that “lenders have always asked about dependents when assessing the ability of applicants to repay a loan. But having children did not actually reduce the amount they could borrow”.

 



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