FSA looks at mortgages and actually does something sensible?

monopoly housesIndustry regulators never have an easy time of it. They have to walk a finely balanced line between over-regulation and letting the industry do as it pleases. Few regulators get it right all the time, and many struggle to manage any of the time. Now, one such regulator, the Financial Services Authority (FSA) has announced that it  will be introducing new mortgage lending rules to prevent a return of the risky business* seen in boom times. The new rules will be drawn up after consultation “ensuring that common sense standards continue to apply in future”.

The fresh-off-the-press Mortgage Market Review aims to prevent a recurrence of the irresponsible lending which resulted in many borrowers ending up struggling to repay their mortgage and in danger of losing their home. The review contains a number of proposals, drawn up after detailed feedback from lenders, consumer groups and other stakeholders, and the FSA is now encouraging consumers, industry and all other interested parties to give their opinions on this new, full, set of proposals.

The FSA think that the proposals will see prospective borrowers - whether they are first time buyers, right-to-buy tenants or home movers - get the right information and advice, at the right time, and ensure mortgage lenders will be properly checking each applicant's realistic ability to repay their mortgage. Call me cynical, but surely this is just common sense, and should have been how things were done anyway.

Following consultation, the FSA Board will make a final decision on the rules in summer 2012, but implementation will not be before 2013.

The main thrust of the proposals are “three principles of good mortgage underwriting”:

- Mortgages and loans should only be advanced where there is a reasonable expectation that the customer can repay without relying on uncertain future house price rises. Lenders should assess affordability;
- This affordability assessment should allow for the possibility that interest rates might rise in future: borrowers should not enter contracts which are only affordable on the assumption that low initial interest rates will last forever; and:
- Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on the assumption that house prices will rise.

Key features of the proposed future regime include:

- Income will have to be verified in every mortgage application;
- Lenders do not have to consider in detail what borrowers spend but cannot ignore unavoidable bills, such as heating and council tax;
- Interest-only mortgages can still be offered as long as borrowers have a credible plan to repay the capital. But relying on hopes of rising property values is not enough;
- Lenders will have to consider the impact of increases in interest rates in line with current market expectations;
- Some applicants, such as those trying to consolidate debts with a mortgage, will have to get advice to ensure they understand the full implications and costs;

Existing borrowers who already have a loan that might be forbidden under the new rules, such as an interest-only loan, a self-certified one, or one with a very small deposit, will not be prevented from remortgaging.

"Existing borrowers will be unaffected and lenders will have the flexibility to provide new mortgages to some existing customers even where they do not meet the new affordability requirements," said the FSA, confirming, "we will allow lenders to waive the affordability rules when entering a new mortgage contract - providing the borrower has a good repayment history."

Paul Broadhead of the Building Societies Association said: "The original proposals were in danger of locking credit-worthy borrowers out of the market or imprisoning those with immaculate payment records, but non-standard profiles, in their current homes and loans… which is good news for the self-employed, those in existing self-certified mortgages and people with negative equity."

Paul Smee, director general of the Council of Mortgage Lenders said the new version of the FSA's rules was "workable and appropriate", saying "the FSA's new proposals seem to strike broadly the right balance." Gosh. He thinks common sense is, well, common sense. Wonders will never cease.

Lord Turner, chairman of the FSA, said: "The proposals published today reflect the ideas and input of many stakeholders, including consumer groups and lenders. We believe these proposals will hardwire common sense standards into mortgage lending and guard against the risky lending practices of the past - leaving most borrowers unaffected, but better protected."

That the proposals are blindingly obvious and something you would have expected responsible lenders to do anyway is a given; however it remains to be seen whether this means that self-employed and “non-standard” borrowers get frozen out of the new market. The consultation is open until 30 March 2012.

*Tom Cruise is, unfortunately, not in the FSA, although he is  in Risky Business.


  • klingelton
    The phrase "shutting the gate once the horse has bolted," springs to mind. Along with "Once bitten, twice Shy." What bank would be stupid enough to lend irresponsibly now anyway. I wonder if the investigation that came up with these proposals cost the GDP of Botswana.
  • Mike H.
    So only 1 person read all that bullshit then?
  • Chris
    Only ten years too late. We might have avoided some of the more worst aspects of the debt boom had this been implemented around 2000. As it is, it looks like an attempt to tempt the last few mugs into the housing market before it collapses completely after this is introduced in 2013.
  • Sicknote
    This is a very worrying situation for a lot of people who cannot prove 'affordability' or pass 'affordability tests'; a blanket rule like this will simply push ever more people like me to live outside the UK. Another daft blanket rule that is a sledge hammer to crack a walnut.
  • Noghar
    Not to mention the fact that this 'code' is full of weasel phrases like 'must consider,' 'should take into account', 'must advise' which are all meaningless twaddle and will be forgotten as soon as the market heats up again, which I confidently predict will occur in 3012. Everyone seems to have forgotten that lenders were supposed to be doing all that anyway back in the Noughties when the bubble was blowing up. And did they? Did they fuck.
  • Gunn
    This makes it sounds like it will be even more difficult for first time buyers so surely the market will collapse as very few people will be able to buy, which in turn means everyone else is stuck where they are. lets just all sell up and rent.
  • oliverreed
    Not all the lenders were cunts, I think the problem comes from independent financial advice paired with commission or sales targets for call centre/branch staff and looking out customers best interests don't mix very well, oh and 125% mortgages! The FSA needs to recognise they also failed, to caught up with crossing the 't's or dotting the 'i's of minor details whilst huge wrong doings went on uncontrolled. But don't worry when they fail to regulate the shit banks that fail the other banks have to pay into massive funds to save the customers of the shit banks, and in turn they pass the fines onto us through fees, charges and shit interest rates. Don't forget the fat cats at the top still get rewarded, for success or failure, the bonuses are still paid and we all still get fucked.
  • b
    No proof of income mortgages, that was an obvious disaster waiting to happen, eh kids?
  • manuelcox
    Refinance mortgage rates going to go up for sure. Any body still thinking should just make use of the low rates. Do not wait and regret it is not that difficult to make it happen. Online is very easy check out either 123 Refinance before you check with the "major banks"
  • Kevin
    It's a good thing, if you can't afford a house you shouldn't be allowed to borrow the money! Theres plenty of opportunity to get a good deal, Firstbuy for example allows you to only require a 5% deposit!

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