Why going to a gym may scupper your chances of getting a mortgage

Published 01st Jan 2011

Mortgage applicants could be penalised for taking out a gym membership or making too many shopping trips, it emerged last night.

Under new guidelines to be introduced this year, application forms may become a lot more intrusive.

The proposals from the Financial Services Authority are meant to ensure a customer can afford the loan repayments.

But experts fear the changes will turn the hunt for a home loan into a nightmare for millions.

A lender will typically ask to look at between three to six months of bank statements to analyse exactly what people spend their money on.

At present regular commitments, such as utility bills and council tax, are taken into account but in future this could be widened to include leisure spending.

It means that anybody seeking a mortgage could be penalised for taking foreign holidays, being a member of a gym or making too many shopping trips.

Ray Boulger, of mortgage broker John Charcol, said: ‘Mortgage application forms will be a lot more intrusive.

‘The FSA is effectively saying that lenders will have to assume that borrowers will keep spending in the same way they have previously.

‘But many people spend a lot more before they have the commitment of a mortgage and then cut back accordingly.’ The country is already in the grip of a home loan famine, with less than 50,000 handed out every month, compared to nearly 135,000 just a few years ago.

It is feared that if the FSA’s Mortgage Market Review is implemented in its current form then up to one in five people could be ineligible under its stringent rules.

A study, funded by the Council of Mortgage Lenders, found one in two people with a mortgage could be hit by the FSA’s proposed changes.

Around 20 per cent of applicants – around 2.2million people – will be ‘shut out’ from the mortgage market, A further 30 per cent with a mortgage, equal to 3.4million, will be able to borrow less than they need.

The CML has warned the proposals are fatally flawed’ and fear they spell the end of ‘the golden age of homeownership’.

Even Housing Minister Grant Shapps has admitted his own mortgage could be under threat.

A Tory MP, he told a National House Building Council conference: ‘I think it was at the moment when I realised that I would not have a mortgage if the MMR changes went through that I thought this might be a step too far.’

Mr Shapps said the mortgage industry needs ‘proper, sensible, top-level regulation’, but ‘not pernickety, down in the dirt, “what can you and what can’t you do” as a mortgage company [rules]’.

Critics insist the proposals overlook the fact that borrowers tend to adjust their discretionary spending once they have a mortgage.

Many first-time buyers drastically curtail their monthly spending, such as scrapping gym membership once they are saddled with a mortgage.

David Hollingworth from the mortgage broker London & Country said: ‘The proposals mean there will be more rigorous affordability assessments. It’s not just a case of looking at income but what you spend your income on.’

Lord Oakeshott, a Liberal Democrat Treasury spokesman, said banks are abandoning millions of young people.

He added: ‘There is only one bank left lending at fair rates to first-time buyers without a 25 per cent deposit – the Bank of Mum and Dad.That is deeply divisive and damaging to social mobililty.’

An FSA spokesman said: ‘We want to ensure there are a clear set of rules for the future that address the tail of very poor mortgage lending, but without fundamentally affecting the ability of most people to get a mortgage.

‘We are not rushing into anything with the Mortgage Market Review and will be carrying out a full economic analysis on the impact of any proposed changes before we issue any final rules.’

Source: ' This is Money '

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