FSA Propose New Mortgage Lending Restrictions

FSA Propose New Mortgage Lending Restrictions

0:01 AM, 19th December 2011, About 13 years ago 1

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Tough new mortgage restrictions to stop borrowers falling in to arrears have been proposed by the Financial Services Authority after months of behind-closed-doors negotiation with lenders.

Out go self-certification and interest-only home loans for most mortgage borrowers.

In come strict affordability tests to combat payment difficulties and mortgage fraud for borrowers – with lenders having to prove borrowers could afford their repayments before taking any action to seek arrears or repossession.

The FSA claims the mortgage market review is aimed at preventing a return to risky boom time lending based on the assumption that house prices would continue to rise to repay loans.

The review applies to all residential mortgages and remortgages but excludes buy to let landlords, who will still have access to interest-only deals, providing lenders continue to offer them.

The FSA is seeking feedback on new mortgage rules for entrepreneurs who borrow against their homes as security for business spending.

The FSA proposes three core mortgage lending principles:

  • Lenders should only agree mortgages or loans with a reasonable expectation that the customer can repay without relying on uncertain future house price rises. Banks and building societies must verify income for every mortgage applicant.
  • Lenders should assess the borrowers ability to repay a loan on the basis interest rates might rise
  • Interest-only mortgages can only be agreed if the borrower can prove a strategy for repaying the loan from other resources and that the plans do not rely on future house price rises.

FSA chairman Lord Turner said: “We believe that these are common sense proposals which serve the interests of both lenders and borrowers.  While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return.

“The three key proposals are, we believe, the most effective way to tackle the problem of risky lending.

“The proposals reflect the ideas and input of many stakeholders, including consumer groups and lenders. We believe these proposals will hardwire common sense standards into mortgage lending and guard against the risky lending practices of the past – leaving most borrowers unaffected, but better protected.”

Consultation on the proposals is open until March 30, 2012.

Mark Alexander, founder of Property118.com welcomes the initiative and says “the countries which have fared best since the beginning of the credit crunch are not those which could be described as a Nation of Homeowners, Germany is a good example. Landlords and mortgage companies need to be far more diligent in making sure that people can afford to stay in the homes they choose to live in.”


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Sam Wong

18:07 PM, 20th December 2011, About 13 years ago

Cant think of anything more stupid.

Why are we addressing a problem that has largely gone away instead of addressing the problems we have today ?
Answer : So that the problem that has largely gone away wont happen again !
Commonsense says : If we dont address the problems we have today, we may not need to address the problems that may or may not happen again.

Wonder how much it costs to come up with this idea !

In any case, what is affordable ? By whose standard ?
For how long ? Against what rate of interest ? 20% ? or 50% ? or 3000% ? (dont tell me thats impossible - we currently have the lowest interest rate in 315 years so why cant we have the highest interest rates in 315 years ?)

It is always possible to find money to buy a house if you really want to - but only at higher costs. More rules just make it more expensive to do the same thing. All it does is make what could have been perfectly affordable into a much more risky adventure.

I am 63 years of age. I have an interest only mortgage which I can afford if I dont splash my money the way our government does. My mortgage is £250,000 which I have to repay in 7 years time when I turn 70. A repayment mortgage will add near enough £3,000 to my current monthly payment. How much do I now have to earn in terms of affordability to qualify for a repayment mortgage which I have had for more than 15 years ? I also know that if I lose my house today, I sure wont be able to afford it in 7 years time. But I can always sell the house or other assets in 7 years time to pay back the mortgage if I have to - and lots of things can happen in 7 years. My children will also be 7 years older by then. Given the choice, I would rather lose my house in 7 years time than lose it today.

I always thought Lord Turner was a clever man.

He is now behaving like all the other politicians who is making everybody pay for the stupidity and abuse of a few.

Instead of encouraging us who want to get on, he is punishing the world for the sake of a few souls who are probably not worth saving anyway.

What a no brainer.

We need a quantum shift in the way we think ! This is not it !

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