The FSA has proposed a raft of new mortgage market standards, designed to stop homebuyers overextending themselves. Will they be a bitter pill to swallow for buyers trying to get on the property ladder?
The Financial Services Authority’s (FSA) Mortgage Market Review aims to make the lending process more rigorous, with potential borrowers subjected to more checks, and their incomes verified in every new mortgage application.
Under the proposals, a lender will only be allowed to arrange a mortgage for a borrower when there is a ‘reasonable expectation’ that he or she will be able to repay that loan – without relying on future house price rises or continuously low interest rates.
The plans are likely to call time on self-certification mortgages (schemes that don’t need evidence of income) and mean that interest-only mortgages will only be issued where there is a realistic plan in place for the borrower to repay the capital.
We support most of the proposals at Which?, but there needs to be stronger protection for existing mortgage holders. The FSA’s new tighter criteria shouldn’t apply to people who already have mortgages. Instead, they should be able to remortgage as and when they want, without the new rules stopping them from doing so.
Lax mortgage rules benefited some
Your initial reaction to the news may well be ‘shouldn’t this have been done ages ago?’. After all, it’s well-known that irresponsible mortgage lending was a significant factor in creating the financial mud we’re all now stuck in.
However, I know lots of people who benefited from ‘overambitious’ mortgage lending… and, by luck or judgement, have made it work. Several of my friends took advantage of 90-95% mortgage deals, because there was no way they could afford to scrape together deposits of more than 5-10%.
A few years later, most of them still have big mortgages – and in some cases their properties are worth less than they paid for them. But when I’ve chatted to them, not a single one regrets buying when they did. In a culture where a man or woman’s home is still very much their castle, most of them are just grateful the boom years gave them a chance to get on the ladder.
A bitter pill to swallow?
I currently rent in London, and can’t see a time in the future when I’ll be able to buy a home of my own. In the bad old days of dodgy mortgage lending, perhaps I would have been able to fly by the seat of my pants and grabbed the lowest rung on the ladder. But in the current climate? And with the new FSA proposals? Not a chance.
Somehow, that makes me a bit sad. I guess the right medicine doesn’t always taste very nice!
Has home buying become an impossible dream for you or someone you know? And do you think the FSA’s new mortgage lending rules will make this unnecessarily tougher?