A guide to mortgage underwriting rules
In the UK, mortgage lenders have to adhere to strict rules when deciding who to lend to.It’s a lender’s responsibility to make sure they only offer what borrowers can afford to pay off, so there are lots of checks involved when trying to get a mortgage.
- Your income
- Your normal expenditure
- Your debts
- Your personal circumstances
- Whether the term runs past your expected retirement age
- Any changes to your household, such as caring for elderly parents or having children
What is an interest rate ‘stress test’?
In 2017, the Bank of England announced to ensure mortgage lenders are even more responsible towards borrowers, including the need for a mortgage interest rate ‘stress test’. Many lenders have in fact been stress-testing in this manner when it was first recommended in 2014 – it involves testing a borrower’s ability to afford drastic increases in the mortgage rate – at 3% above the rate that will apply when any introductory offer ends. This stress test ensures that borrowers can afford to repay their mortgage even if mortgage rates skyrocket. For example, mortgage lenders will now need to make sure that even if you’re only paying £700 per month on your repayments, that you could theoretically afford a significant increase in rates, which could potentially see payments more than double.