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Mortgage rules tightened – goodbye dream home?

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?


When we applied for our mortgage we did it through a broker, who went through all our finances and budget. We were very confident we would be able to cope with an interest rate rise, as we have enough of a buffer going into our saving accounts to allow for that. Prior to that we had a very detailed spreadsheet of all our outgoings and commitments and knew exactly what we were prepared to pay (in as much as you can plan these things).

We have, however, only been able to achieve buying our flat (though we’ve not completed yet, but that’s a whole other issue) because we’re going for shared ownership. So we’re not buying as much. Sure we’d rather buy outright, but it’s not a possibility for us renting and travelling in London.

I think it would be a shame if 90% and 95% mortgages start disappearing again (they’ve only just started coming back), as it does price people who could afford something out of the market for longer because they can’t save enough for a deposit because rent is so high.

Any mortgage lender with half a brain will be running these checks already, so making the rule something that is common sense and already happening (mostly) is hardly news or anything to read too much into. It is hardly going to impact on the current housing market situation.
Given that the “loan risk” or “risk of default” is already being established as minimal through such checking why is the housing market being stagnated by very high depost requirements? I refer to movement rather than prices. Prices do need downward correction and gradually this will happen through inflation rather than through any crash.
I’d suggest big deposits are not necessary if a sound repayment plan is in place? High deposits have been an over reaction to the financial crisis and only contributed to making things worse.
A return to 5% deposits and say 4 times income mortgages would get the housing market moving again, allow people to get onto the home ownership ladder and have a place to live. It would reduce the need to continue paying high rental costs, and it will also therefore make it a bit harder for the buy to let brigade to cash in big time (as they currently are).

I think there needs to be a better way for self-employed people to get a mortgage. Previously self cert schemes were a godsend but now that they’re going it means self-employed people are being treated unfairly. They have to produce three years’ worth of accounts showing a certain income, whereas salaried people only need show three months’ worth – there needs to be a fairer system. OK, self cert mortgages meant some people took advantage, but what option is there now for those who really needed that option?

One question to ask about 90-95% mortgages is what proportion of people do they benefit and what proportion of people end up losing their homes because they should never have gone into such debt in the first place. Another is how do you prevent some people from overstretching themselves if these mortgages exist? I would bet that some lenders out there will stretch the definition of “reasonable expectation” and “realistic” plan. Isn’t it better (less bad) that the dream of owning a home remain impossible rather than become the nightmare of having it repossessed?

14 March 2012

Just make sure 2bd charge market is regulated in the same way as 1st. Often desperate or vulnerable people find themselves taking out these loans and they do not get the sane protection but are disproportionately repossessed.