Image - David Jones - Press Association Images
Getting a mortgage is going to be a lot tougher - particularly for people with a less-than-perfect credit history or anyone whose income has previously been self-certified.
Two years ago, around 15,000 different mortgage products were available. Now, there are only 2,282, with the best deals available only if you have a good credit rating and a large deposit.
The increased regulation of the mortgage market is a result of intervention by the Financial Service Authority (FSA), which wants to crack down on "irresponsible borrowing" as much as "irresponsible lending".
As a result, lenders are going to be looking harder than ever at your financial circumstances before even thinking of giving you a mortgage offer.
Prove what you earn
The FSA is proposing that self-certified mortgages, where earnings are taken on trust, should be outlawed. Already it is increasingly hard to get hold of one, as the last major supplier, Platform, said it would leave the market at the end of the week.
As these comprised 49% of all mortgages at the peak of the housing boom, a large number of people will be forced into new deals.
If you are one of the two million Brits who are self-employed or freelance, you are now going to have to arm yourself with proof that you really do earn what you claim. That means keeping copies of your tax returns for at least three years to show prospective mortgage lenders.
If you run your financial affairs through a company and haven't paid yourself a lot recently, get your accountant to prepare accurate accounts to show how much you could take out of the company to fund a mortgage comfortably.
Getting a deposit
While 100% mortgages or those with a high loan-to-property value level have not been banned, they are a lot more difficult to get hold of - and may be capped in future if the FSA finds their current proposals do not have a "sufficient effect". Moneysupermarket calculates there are just six lenders offering mortgage at more than 95% of a property's value, out of more than 50.
That means you will probably need to find a significant deposit, particularly if you want to enjoy a low interest rate. Generally, the smaller the deposit, the higher the interest you'll pay - if you are made an offer at all.
So get saving. Some people are getting round the deposit problem by getting relatives to help out with the deposit or guarantee part of the mortgage, which means they will be liable if you default on repayments.
Check your credit report
Crucially, your credit report needs to be in good order. It details the personal history of your credit accounts, such as credit and store cards, overdrafts, other loans and mortgages.
Some credit and store card providers even detail your last statement balance, how much you have paid off each month and if you are enjoying a promotional rate.
If you have a court judgment, bankruptcy, individual voluntary arrangement or debt management scheme against your name, that will also be recorded, as will any financial association you have with someone else through a joint credit account or application. You'll also find your electoral roll listing - lenders use it to check that you live where you say you do.
Lenders take the information in your credit report into account, as well as your application form and proof of earnings, when they decide whether to grant you a mortgage and on what terms - so check everything carefully to be sure that it's up to date and accurately reflects your circumstances.
You can see your Experian credit report for free with a 30-day trial of CreditExpert
Clean up your credit history
It's possible lenders will soon have to check how much you are spending on holidays, running a car and at Christmas before making a decision, so you need to demonstrate that you are a reliable and responsible borrower.
If you find an error in your credit report, contact the relevant lender and have the entry corrected. That also includes any inconsistencies in your address. For example, if your electoral registration says you live in a flat 4 but a lender has put it down as flat d, get it changed to match your registration.
If you have ever missed a payment on a loan or credit card - details are recorded for 36 months or more - and there was a good reason, such as illness, ask the credit reference agency for a note of explanation to be put on your report.
If you have taken out a credit card for a rainy day, consider closing the account and sending it back. Lenders take into account the total amount of credit available to you, not just the amount you use, when deciding your creditworthiness.
If you are in stable relationship, it's a good idea to get your partner to check his or her credit report. If you have recently broken up with a partner, make sure any joint credit accounts are closed and any record of your financial association is removed from your credit report. Lenders can check the credit reports of any financial associates when coming to a decision.
Prepare for an application
Making multiple applications leaves a record on your credit report that can, in conjunction with other information, persuade lenders that you're desperate for money or even planning a fraud, so you need to prepare carefully before applying for a mortgage.
Research the market to identify the most appropriate deal and consider speaking to a mortgage adviser as well as comparison sites and newspaper supplements.
It's free to see your Experian credit report during a 30-day trial of CreditExpert
