New Rules to make Mortgage Lending Tougher
Yahoo reports on plans to reform the lending market. In order to avoid another loans crash the Financial Services Authority by making mortgage lenders introduce stress tests and income checks.
This means that buyers would be wise to check they can prove to lenders that they can afford the mortgage before applying. There are a growing number of tools available on online bank accounts for budgeting which could could help.
These measures “follows a report commissioned after the last recession in 2009 that found perhaps contrary to popular belief, mortgage lending has been roughly consistent since the middle of 2009 but lending by foreign banks, specialist lenders, and in particular Irish banks, has fallen away.
It also found the number of mortgage holders unable to pay is far less now than it was during the mid 1990s. This is largely down to the low Bank of England interest rate.
During the last decade the majority of mortgages were granted not to first time buyers but people wishing to move home and others wanting to re-mortgage their properties.”
The FSA has used the present dip in the economy to put these proposals in place for when the economy recovers.
A number of proposals, which were considered but rejected by the FSA, include a restriction on the amount a person or couple can borrow when compared to earnings, a total ban on interest only mortgages and tight limits on granting mortgages for people heading into retirement.
Instead the FSA has proposed the following three rules:
:: An affordability assessment must be carried out which includes verifying an individual or couple’s income. This was not always the case during the last boom.
:: Unavoidable bills such as utilities, council tax and spending on children must be taken into account.
:: All mortgage lenders must consider potential rises in interest rates and assess whether a borrower would be able to repay in such an eventuality.
The report has been widely welcomed by the Council of Mortgages, but received a more cautious evaluation by the chief executive of Countrywide mortgage broker.
The conclusions drawn from the report was that “bad” mortgage lending was a thing of the past on the whole, but this was down to the current economic environment.
The new rules are expected to come into effect in 2013.