Since the impact of borrowers failing to meet their mortgage payments in the USA and the failure of banks in the UK and Iceland it has become increasingly more difficult to borrow money. Unfortunately all the best financial brains failed to come up with solutions to the problem. This resulted in thousands of homes on both sides of the Atlantic being re-possessed, although this figure would have been greatly reduced if those people had taken out som form of income protection insurance.

Statistics reveal that mortgage approvals at the end of February 2010 fell by more than 1000 for the third month in a row despite house prices dropping by 1.5%. What is surprising is the fact that the number of mortgages available in February actually increased by over 1100 which in a way does not make sense, availability has increased but the take up of mortgages is down.

Let’s try and examine the reasons why this should be. First of all there has been no increase in loan to values with hardly any deals over 95% loan to value and not many more at 90% loan to value. Not only have these facts affected the first time buyer market but anyone looking to re-mortgage have also found it extremely difficult to find a lender. On top of this is the criteria for accepting a loan application has become very cloudy with many lenders using affordability calculations instead of the old income multiples system. This means that every borrower applying for a mortgage with a lender that uses affordability to assess the case really have no idea if they will be successful. The other difficulty for borrowers is that the various lenders use different methods to decide on affordability so an application turned down by one lender may well have been accepted by another lender.

The decline of mortgage completions also causes problems for borrowers who suffer from a poor credit rating, even though some of these blemishes may have been of a minor nature. One small County Court Judgment means they will be turned down by virtually every high street lender and if the loan to value is high they have no chance at all. The good news is that there are signs this may change with one lender seriously considering applications from borrowers who have a clean credit history for the last 6 months. Of course there are other criteria that will be taken in to account but this lenders statement that the financial underwriting of the loan will be carried out using common sense certainly provides hope for the future.

Please remember that your home may be repossessed if you do not keep up with your mortgage payments, for this reason, income protection insurance should seriously be considered by anyone taking out a mortgage.