Ever since the credit crisis struck in August 2007 it has become more difficult to obtain mortgages. Three years on, the Financial Services Authority wants to tighten mortgage rules in a way that could rein back lending still further.[caption id="attachment_1201" align="alignleft" width="492" caption="The Financial Services Authority wants to tighten mortgage rules"][/caption] Borrowers, for example, could be forced to reveal precise details of their monthly expenditure, including bills, food shopping etc - to prove they can afford a loan.
Why is this review happening?The FSA is keen to prevent a return to the days of reckless, high-risk mortgage lending that sparked the credit crisis. Before 2007, lenders were advancing six, seven or even ten times borrowers' income, or lending to people who had no proof of their income under controversial self-certification mortgages. This review aims to tighten up lending practice to protect both borrowers and banks
What will be the big changes?Mortgage lenders will have to take into account a borrower's job, salary, financial history and potential earnings, whether they have any children or other dependants, as well as their outgoings and household costs before lending. They will be expected to be rigorous in scrutinising applicants' details, including bank statements. It will become more difficult for some borrowers to get a mortgage. But the regulator is expected to stop short of imposing rigid maximum limits on the amount banks can lend relative to a borrower's income - for example, capping it at the traditional two-and-a-half times salary. Self-certification loans, where the borrower declares their income without proving it, will be banned. 'Some self-employed workers who do not have at least two years of proven, audited accounts could lose out.
What will it mean for house prices?The easy credit of the past decade has fuelled house price growth. Any long-term fall in mortgage lending is certain to dampen prices. New rules could also increase mortgage processing costs and delay house purchases.
I'm struggling to save for a deposit - will I be penalised?The FSA says borrowers with a small deposit but who are able to afford the loan should not be shut out of the market, so it has resisted an explicit ban on high loan-tovalue deals. In practice, no lenders offer deals of more than 90 per cent loan-to-value and those with small deposits are already effectively barred from the market.
Can I keep my interest-only loan?The regulator is not seeking to ban interest-only mortgages, where borrowers simply pay the interest on the loan, but do not pay down the capital borrowed. But it does want this area tightened up. Anyone wanting an interest-only loan will have to be able to show they can afford the mortgage on a repayment basis. This could be problematic for some borrowers when they come to remortgage if they have taken interest-only loans as a way of keeping down monthly costs. Some borrowers with high loans to value, such as 75 per cent or more, could find they are asked to transfer from interest-only to repayment. 'Many won't be in a position to be able to afford this,'.
What does it mean for property investors?Buy-to-let mortgages look set to be regulated by the FSA under proposals in the review. This move is unlikely to meet with much opposition as it offers greater protection for borrowers. Mortgage availability for landlords, which are already hugely constrained, are not expected to improve.
ReviewBarchester Green Investment offer a genuine ‘whole of market’ independent service, which means we will source products from all the mortgages that are available. Please note, most mortgage intermediaries are only able to offer the intermediary products. If you would like to discuss your options, arrange a review or have questions relating to your mortgage, please contact us.
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