Before the modern era of credit scoring, mortgages were manually assessed by your Building Society Manager. In the 1990s, lenders decided to move towards more uniform income assessments, in a bid to make the process more consistent and reliable.
To reduce people who couldn’t afford a mortgage getting accepted, a lending cap was brought. This stopped people borrowing far more than they could actually afford, as some were guilty of borrowing more than 3 or 4 times more than their income.
Over time, lenders were becoming more generous with this lending cap and their conditions, and they ended up bringing it down to receive more mortgage applications. Some lenders were even granting their customers a mortgage without checking their financial history and payslips.
As you might’ve been able to predict, the economy collapsed, causing the Credit Crunch of 2007. During this time, lenders were only proceeding with cases if you could afford a 20-30% deposit, making the mortgage process very difficult, regardless of whether you were Moving Home in Birmingham or a First-Time Buyer in Birmingham.
Eventually, the market recovered and in 2014 a new and improved credit scoring system came into place, called the Mortgage Market Review (shortened to MMR). The MMR brought forward a brand-new set of requirements that lenders have to legally follow. Lenders now have affordability calculators that determine if an applicant will financially be capable of paying off their mortgage.
These calculators also give them a deeper look into an applicant’s spending habits and how much disposable income you have after tax deductions. Your bank statements are completely scrutinised to ensure that if you can’t afford a mortgage then you are not to be given one until you can afford one.
Lenders will always compete on price and lending criteria but will avoid a race to the lowest interest-rate as they’ll never make profit that way. This will show in the number of variances between individual lenders and their maximum borrowing capacity. Different lenders will be looking for different client niches, so just because one has turned you away, doesn’t mean they all will.
Some lenders will take into account state benefits such as tax credits for a mortgage. Others could be more generous if you are applying for a Self-Employed Mortgage in Birmingham. Extending the term of the mortgage to the maximum allowable also increases the amount they will lend.