FSA SET TO RIP UP MORTGAGE RULES
THE FINANCIAL Services Authority (FSA) unveiled plans to overhaul the mortgage market this morning, with some warning the changes will punish borrowers while doing little to tackle the number of repossessions.
The FSA said in a report today it will impose “affordability tests” on all borrowers, effectively banning self-certified mortgages and further restricting credit for those with a chequered borrowing history.
It said borrowers must be tested on their ability to repay the entire mortgage, even if the loan starts with an interest-only offer. This type of loan relies on the increasing value of the house to repay the capital.
The regulator stopped short of capping loan-to-value ratios, meaning 125 per cent mortgages could make a return, but said a ban on interest-only mortgages remains an option and requires further consultation.
While the FSA claims the measures will protect vulnerable homeowners from uncontrollable debts, the Council for Mortgage Lenders (CML) last night slammed some of the proposals, saying they will make it more difficult to obtain a mortgage without preventing defaults.
Director general Michael Coogan said: “There will always be a regulatory trade-off between protecting consumers from over-borrowing, and increasing the barriers to home-ownership. The risk is that the gain will not match the pain in the short term.”
The CML claimed just one in ten mortgage arrears are caused by over-borrowing, compared to the 40 per cent caused by job losses, which cannot be predicted in an affordability test.
The trade association also warned that a curb on interest-only loans could penalise borrowers who need the flexibility of payment breaks.
The FSA has not specified the method of income assessment banks must use, and says the aim of the measure is to reduce exaggeration of income and outright fraud on mortgage applications.
The regulator said almost half of mortgage customers between 2007 and April 2010 did not have to provide proof of income. While most of the main banks no longer offer self-assessed loans, some smaller institutions continue to do so.
Lesley Titcomb, FSA chief operating officer, said: “While it is clear the mortgage market
has worked well for many, we need to build a strong new framework to protect customers
and to ensure that the problems we have seen do not happen again.” The FSA has given lenders until November to come forward with feedback.