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How hard should it be to get a mortgage?

Model house with words 'help me'

The mortgage industry is concerned that proposals for the future of mortgage lending will have a negative impact on consumers. So do we really need to be stricter when it comes to lending?

Since the recession, many borrowers are struggling with their mortgages, and questions are being asked about how mortgages were granted in the past.

Should some borrowers never have been given a mortgage at all – and was lending too free and easy for our own good?

The future of mortgage lending

The Financial Services Authority (FSA), which regulates residential mortgages, carried out a review of the mortgage market to look at these issues and has come up with a range of proposals for how lending should be carried out in future.

The proposals include: requiring lenders to get proof of income from all mortgage applicants; carrying out affordability checks to work out how much disposable income an applicant has; looking at the impact of future interest rate rises on borrowers; and imposing stricter affordability tests on people who have had credit problems in the past.

These might sound like sensible measures but the Council of Mortgage Lenders (CML) has called them ‘flawed and impractical’. It believes the measures would make the market too restrictive for responsible house buyers and prevent people from fulfilling their home-buying aspirations, while not protecting the vulnerable effectively either.

Too little too late?

But shouldn’t mortgage lenders have already been checking that borrowers could afford a mortgage before granting them one? They should have also considered what impact future market and life changes could have on them.

And, as far as self-certification mortgages go, these used to exist to allow borrowers to get a mortgage without proving their income. They were designed for people such as the self-employed, but in reality there was little to stop many others from abusing this by borrowing more than they could realistically afford.

Mortgage lenders may well be concerned that stricter borrowing will constrict the housing market and limit their business. But perhaps they should show they’re serious about giving out appropriate loans that won’t get consumers into hot water later.

And while we’re on the subject of getting in to hot water, let’s not forget how the irresponsible actions of mortgage lenders such as Northern Rock and Bradford and Bingley resulted in the taxpayers having to prop them up.

Do you think lenders should be constrained by stricter rules? Should consumers be allowed to take responsibility for their own finances whatever the consequences for society? Or do you want reassurance that when lenders behave irresponsibly it isn’t the taxpayer who has to pick up the tab?

Comments
Guest
tom baigrie says:
8 November 2010

I just blogged on this same point on http://bit.ly/bXyPl3 and the answer (I think) is yes they are being to restrictive – at this time of the economic cycle. Regulators often have to bolt stable doors too late, that’s inevitiable. The trick is to open them up when the horse wants to come back and you fancy a ride!

Guest

We need a short, sharp shock. Sensible lending ended in 1980 when the statutory right-to-buy scheme was brought in with a right-to-mortgage and little any sensible council could do to stop loan sharks from granting second mortgages, Anyone who has dealt with RTB knows that there was a significant proportion of transactions where people were not borrowing to buy but buying to borrow. It was a short journey from this to toxic mortgages bringing down the world’s economies. There may be pain at the moment but, in the medium and long term, realisation that we have to get real and borrow only what we can afford will be good for us.

Guest

Totally agree with John 30. A Tory inspired system to remove housing from Councils led to the disaster of sub-prime mortgages in the UK – exacerbated by the deregulation of banks.

To be honest anyone would always want to borrow as much as possible – It is the Lender who should be responsible to ensure the borrower can actually afford to repay. The Banks and others failed badly to be responsible.

I bought my last house just before the 1980s – It cost 2.5 times my personal annual salary and meant I could still just afford to keep on paying the mortgage when interest rates reached 15% – a number of people couldn’t and were foreclosed.

Since then mortgages have been 10 times annual salary and are unsupportable in times of need.

The worst of it is the interest on my savings is now derisory – so I’m suffering from the irresponsibility of others – yet I’m told I’m “lucky”.

A 90% decrease in income is “Lucky”??

Guest

I mostly agree with Richard, expect that everyone does not always want to borrow as much as possible. Personally I would like to borrow as little as possible because I intend to pay it all back.

It is the responsibility of both the borrower and the lender to make sure that the repayments can be made. However, since the lender is lending as a business, they should be required by law to ensure that the borrower can afford to pay. Therefore there should be no sub-prime or self-certification mortgages allowed and strict income multiples should be adhered to. This would also lower the risk for the lender so they should be able to offer better interest rates.

The current free for all is mainly responsible for the stupid house prices rises that put buying a house out of reach for most.

And Richard, you are “lucky” to have been wealthy enough to have been able to save. At least you have those to fall back on in times of hardship even if you aren’t making loadsamoney in interest.

Guest

Mark – I meant that one usually wants to borrow as much as possible because mortgages are or were the cheapest form of large long term loans over say 25 years – so that repayments were affordable. I also intended to pay it all back – but prudently.or in hope. I researched mortgages before I even thought about a house

And I’m sorry but if a bank decides that it will loan a sum – it is their responsibility to ensure you can pay it back – the trouble was the Thatcher deregulation meant the Banks could gamble . The free for all was also caused by Thatcher.

Sorry being prudent is not lucky – it is a responsible attitude towards ones future . I worked hard to obtain two degrees – I then worked hard to improve my position and income – In hard times I went without holidays so I could pay my mortgage. Others simply went bankrupt.. Many friends with the same income as I did so. I lived within my means – they did not.

The miserly interest rate was not of my making – but of irresponsible people encouraged by Thatcher – but I suffer. Those that did not save can get “benefits” – I can’t. How is that “lucky” ?

I am “lucky” that I am forced to spend my hard earned savings because others can’t be responsible or prudent?????

Guest

OOPs typo – “but prudently or in hope” should read “but prudently not in hope”