Background (the serious stuff!)

We are all well aware that it was the banks loose lending of mortgage funds to people mainly in the western world without checking their ability to keep up their mortgage repayments over the longer term that eventually led to the credit crunch that started in 2008.

More specifically, many banks sold on their mortgage books (aka securitisation) to investment houses who then sliced, diced & repackaged these book of loans in to different bundles & re-sold these various bundles on at a profit to other investment houses, who in turn sliced, diced, repackaged & sold on their new bundles & so forth, all on the basis that over the longer term, they would yield good returns (people paying their mortgages) whilst secure in the knowledge the investments were secured on solid bricks & mortar ie peoples homes, that were year on year going up in value.

As time went by, many of the individual mortgage borrowers could not sustain their mortgage repayments when their low fixed or discounted interest rate ended & therefore an era of bad debt started ie late payments leading to mortgage arrears that in turn led to outright mortgage defaults & ultimately property repossessions. However, nobody knew where this bad debt would surface as it had been sold on so many times in different bundles, it was impossible to keep track of.

The banks & investment houses knew well before the credit crunch that this would eventually surface given time as more & more folk got in to trouble with their mortgage payments & behind the scenes were desperately trying to off load these bad bundles even at a loss just to get it off their books.

By 2007 we started to hear the rumblings but little did we realise its full impact until mid 2008 when it all went pop.

In 2008 we started to see savers queuing up outside banks to get their funds out, whilst other banks stayed in business but pulled up the drawbridge to new lending, leaving the remaining others to carry on lending but they struggled having run out of money.

Hence a Crunch on Credit.

Countries printed more money aka Quantatitive Easing (what a name!) on the basis banks should use this to lend to worthy mortgage borrowers & businesses, but instead the banks used this to shore up their balance sheets which had been severely affected by the bad debt they carried & the financial regulator's subsequent tightening of rules of the assets versus liabilities ratio that banks should have, so the QE funds were never passed on by the banks.

As a result, some people either lost their jobs through redundancy or feared this would happen as businesses could ill afford their payroll, and in turn the public stopped spending which meant more businesses suffered. Even with interest rates dropping to all time lows to help mortgage borrowers & businesses keep going, through fear people still stopped spending. Residential & commercial property values along with company share prices plummeted overnight, thus devaluing peoples pension funds which were primarily invested in equity & property, and so we spiralled forever downwards. A vicious circle.

All Countries measurement of success was in dread (most commonly known as Gross Domestic Product - detail of which I won't bore you with today), Governments started to impose austerity measures including drastic cut to public spending (some of which was well overdue to tell you the truth) coupled with either increased direct or indirect taxation, all of which was intended to refill the coffers that were very bare indeed.

People are starting to "feel" more confident and are slowly starting to spend again. House prices in many regions of the UK have recovered as have company share values. Therefore residential & commercial property along with the UK stock market appear to have bounced back. We're probably fooling ourselves as there's no real evidence yet of sustainability, and we're a long way off a full recovery. Indeed many experts say there is more bad news lurking in the dark recesses but we'll leave this discussion for another day as, "heh.....who wants to be a kill joy? "

Sooooooo....with house prices rising and banks less scared of arrears and another property crash, mortgage borrowing has picked up.

Then "BAM!" - in comes MMR.

What has Measles, Mumps & Rubella got to do with Mortgages?

No, I don't mean the vaccine. I mean the new Mortgage Market Review that came in to play on 26th April.

MMR requires lenders to act more responsibly when lending. So you could say, they are now a vaccine against another outbreak of mortgage defaults through poor lending practices.

That's all I'm going to say today about MMR as I'm beginning to bore myself.

So, where does eating too much chocolate reduce your mortgage chances?

Lenders now have to drill down in to borrowers finances and not only thoroughly check their earnings & sustainability of earnings, but their expenses also, and I'm not just referring to items such as utilities or loan and credit card repayments, child care costs & food.

I mean everything from petrol, other travel costs, Sky TV & magazine/newspaper subscriptions, gym memberships, pet costs, holidays, eating out, kids shoes, bad habits such as smoking, gambling, drinking, takeaways & so on it goes.

Now....this is where chocolate comes in.

A client of mine is addicted to chocolate & regularly withdraws cash from hole in the wall ATM's to buy her favourite dark chocolate by a well known brand. On applying to a lender for her mortgage, they queried the regular cash withdrawals that showed up on her bank statements (which they had scrutinised item by item) and on her openly admitting it was to buy chocolate each day to eat on her way home from work, they referred it back to the underwriter.

You there already aren't you? You've got it. Yup...they factored in the amount she spent on chocolate as a regular outgoing & on doing so, reduced the amount they would advance her by £8,000!!!


In summary, my best advice is 3 - 6 months before you want a mortgage, get rid of your pet, your kids or at least one of them, take your kids out of college & send them to work, walk or cycle to work, buy your food from a cheap supermarket chain, recycle your clothes, stop going on holiday, give up smoking, gambling, eating takeaways and most of all; CHOCOLATE!