Borrowers alter spending habits to beat the mortgage approval minefield

With Sunday marking the 12-month anniversary of the introduction of tougher mortgage lending rules, research by MoneySuperMarket has shown that prospective borrowers are changing their spending habits in a bid to pass the tighter lending criteria.

The comparison site found that a fifth (20 per cent) of those looking to apply for a mortgage in the next 3 years are planning to use cash more frequently to hide exactly what they spend their money on from a prospective lender, while 21 per cent will pay for more items on their credit card and then clear the balance at the end of each month so they can maintain a healthier balance in their current account.

Spend-conscious borrowers also plan to rein in their monthly spend by an average of £159 by cutting back on non-essential items so as not to appear frivolous with their money. And a third of savvy borrowers (29 per cent) intend to pay off all debts in the lead up to their mortgage application. However, nearly one in 10 (eight per cent) had never even heard of the new MMR (mortgage market review) rules.

Kevin Mountford, head of banking at MoneySuperMarket said: “Since the new mortgage lending rules came into play a year ago, those looking to remortgage, existing borrowers who are moving home and looking for a new deal and first time buyers will have been subject to their lender looking more closely – almost forensically – at their monthly outgoings. While the rules were introduced for the right reasons, in some cases borrowers who can easily afford a mortgage are being turned down for arbitrary reasons, despite them being able to easily afford mortgage repayments. While we wouldn’t want to see the ease of approval going back to the pre-credit crunch levels, it is clear than some consumers have changed their spending habits in order to pass the tests, so may be trying to paint a picture that is far from the reality just to satisfy the requirements.

“Paying off debts is always a good way to start when it comes to applying for a mortgage as existing borrowing will be taken into account by a lender when it comes to your application. Reducing the amount you spend each month could also help when it comes to the amount a lender thinks you can afford to borrow. But those trying to ‘play’ the system should exercise caution as lenders may still require you to prove where your cash goes. Using a credit card to hide your spending may also count against you as lenders have access to your credit report, so will be able to see a real-time snapshot of your credit card balance at any time within the month.

“Research and shopping around for the best deal is an essential first step when applying for any mortgage And don’t forget, you need to look beyond the rate of interest to the fee as well, as this can significantly impact the total cost of the mortgage over the term of the deal.”