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?