Will a car loan stop me getting a mortgage?

Do the new rules mean it is going to be more difficult for me to get a mortgage, especially as I have just bought a new car?

Question: I have just had an offer accepted on a flat but the estate agent says it is going to be more difficult now for me to get a mortgage because of some new rules, and especially as I have just bought a new car. Surely this isn't correct? 

Answer: The agent is referring to the Mortgage Market Review that has taken place, resulting in reform. On April 26 new rules were introduced by the Financial Conduct Authority, which regulates the financial services industry, with the aim of ensuring that borrowers using their own homes for security for their loan are actually able to afford the repayments, and that the mortgage arrangements suit their needs. The new rules do not apply to buy-to-let mortgages or to second mortgages.

Taking out a mortgage to buy a property is generally the biggest financial commitment most people make. Under the new rules a mortgage lender must ensure that a borrower can truly afford the loan, and will be able to do so in the future if interest rates go up. You will have to prove your income in the usual way but now you must also inform the lender what you need to spend to maintain a basic living standard.

The lender will take into account three categories of spending — firstly, essential expenses such as food and utility bills, council tax etc, and secondly, basic quality of living costs such as clothing, toiletries, child care and leisure expenditure, such as gym membership. Thirdly, they will look at other repayments and commitments such as credit card bills and car loans.

This is a more detailed examination of your financial circumstances than has previously been deemed necessary by regulators, although in reality many lenders have been looking at borrowers' finances in this sort of detail for some time. Any new car loan you have will, of course, be taken into account, to establish whether paying the mortgage could cause you financial difficulties now, or in the event of a future rates rise.

What's your problem? If you have a question for Fiona McNulty, please email legalsolutions@standard.co.uk or write to Legal Solutions, Homes & Property, London Evening Standard, 2 Derry Street, W8 5EE. We regret that questions cannot be answered individually but we will try to feature them here. Fiona McNulty is a partner in the residential property, farms and estates team at Withy King LLP (withyking.co.uk).

Retrospective warranties can be expensive, but if the seller wants to sell the property to a buyer who needs a mortgage then it may be the only way forward.

These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.

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