Industry holds its breath as mortgage reforms kick in

Tomorrow sees the start of a tightening of mortgage lending rules amid fears that it may stifle the housing market recovery.

The influential personal finance industry publication Mortgage Strategy says seven out of 10 mortgage analysts say it will be harder (not to mention slower) to get a mortgage under the new rules.

For borrowers it means not only showing evidence of earnings (payslips or, for the self-employed, audited accounts) but showing detailed records of spending, too.

They must itemise and cost spending on things they cannot do without, as set out in a list provided by the Financial Conduct Authority, including food, household cleaning and laundry, all heating costs, water bills, telephone, essential travel and existing property charges such as council tax, buildings insurance, ground rent and service charges for leasehold flats.

Borrowers must also reveal patterns of discretionary spending on clothes, household goods, personal goods such as toiletries or leisure activities.

The FCA says they most itemise other debts such as credit card bills, outstanding loans, child maintenance and alimony payments.

Lenders will also consider how interest rates are predicted to change over the next five years, to see how they might affect a borrower's mortgage payments. If those payments are likely to go up - perhaps because they choose a mortgage product with discounted early payments - the lender will check that the borrower can afford it later, based on your financial commitments.

And if a mortgage terms extends into the borrower's retirement, the lender will check on pension income predictions too.