22
Dec
FSA Mortgage Review
On Monday, the Financial Services Authority (FSA)
published its mortgage market review – aimed at preventing
“a
return of the risky mortgage lending seen in boom times, by
ensuring that common sense standards continue to apply in
future.”
A press release accompanying the review states that “the
FSA has significantly amended the proposals, following detailed
feedback from lenders, consumer groups and other stakeholders and
informed by a cost benefit analysis which is also published
today”, and is now encouraging further comment.
Following consultation, the FSA Board will make a decision on the
final form of rules in summer 2012, with implementation
“not before 2013”.
The three principles underlying the review are as follows:
- Mortgages and loans should only be advanced where there is a
reasonable expectation that the customer can repay without relying
on uncertain future house price rises. Lenders should assess
affordability;
- This affordability assessment should allow for the possibility
that interest rates might rise in future: borrowers should not
enter into contracts which are only affordable on the assumption
that low initial interest rates will last forever; and
- Interest-only mortgages should be assessed on a repayment
basis, unless there is a believable strategy for repaying out of
capital resources, that does not rely on the assumption that house
prices will rise.
Key features of the proposed regime include:
- Income will have to be verified in every mortgage
application
- Lenders do not have to consider in detail what borrowers spend,
but cannot ignore unavoidable bills such as heating and council
tax
- Interest-only mortgages can still be offered as long as
borrowers have a credible plan to repay the capital but relying on
hopes of rising property values is not enough
- Lenders will have to consider the impact of increases in
interest rates in line with current market expectations
- Some applicants, such as those trying to consolidate debts with
a mortgage, will have to get advice to ensure they understand the
full implications and costs
- Existing borrowers will be unaffected and lenders will have the
flexibility to provide new mortgages to some existing customers
even where they do not meet the new affordability requirements
The consultation is open until 30 March
2012.
Commenting on the FSA’s latest Mortgage Market Review
proposals released today, Peter Bolton King, Chief Executive of the
National Association of Estate Agents, said:
“We’ve made our views clear to the FSA that this
review should not prevent first-time buyers from accessing mortgage
finance. I’m relieved that the FSA has listened to our
concerns and opted for common-sense proposals. Banks must be given
clearer incentives to offer mortgage finance to the UK’s
embattled first-time buyers. First-time buyers are the lifeblood of
the property market and recent NAEA data shows the number of
first-time buyers getting on to the housing ladder has reached a
three-year low.”