New FSA rules- will they stop you getting a mortgage?
An FSA announcement, due to be made tomorrow, will introduce tough new mortgage regulations in the UK, because it clearly isn’t hard enough already to get one.
There are three main changes anticipated, all of which will ‘protect’ the market by restricting the amount of people who will be able to become property-owners. But are they grounded in good sense, or just bureaucracy gone mad?
1. The death of the interest-only mortgage
This particular mortgage product has been doing a swansong for a while. Under the new rules, it is anticipated that these borrowers will now have to show that they are saving a pot of money to pay off the capital when the mortgage matures. Of course, this was always the idea anyway, but many people previously relied on the value of their home to make up any shortfall, assuming they could downsize in future. Given the amount of negative equity kicking around, perhaps this isn’t such a great assumption to be working on.
Now, it is expected that lenders will be required to check at least once during the term of the loan that the savings pot is in place. Lenders have already started to cut back drastically on interest-only deals ahead of the can’t-see-it-not-happening rules being introduced. Nationwide, Britain’s biggest mortgage lender, announced earlier this month that it will stop offering such mortgages to new customers. This will be a blow to many first-time buyers who may have relied upon the lower monthly payments offered by interest-only mortgages to get on to the housing ladder.
2. You can’t get a mortgage in your 50s
The poor old 50 somethings have already had to deal with the injustice of pension age being moved from underneath them, and now their right to buy a house (with a mortgage) looks like it will also be snatched away.
Well, not quite. The changes being announced by the regulator are also likely to mean that lenders must ensure any mortgages offered will be repaid before the homeowner reaches their 70th or 75th birthday.
While this could prove difficult for people who are already in their 50s wanting to take out a typical 25-year mortgage, do people really want to be finding that amount of cash every month in their 80s? Nothing would prevent them from taking out a 15 or 20 year mortgage instead?
3. The self-employed
The self-employed will have to provide audited accounts to prove their earnings. While we don’t want a return to the heady days of self-certification, where a homeless person could ‘prove’ earnings of a millionaire, is this overkill for sole traders and small businesses? Currently only businesses who meet 2 out of 3 certain criteria, including a turnover of more £6.5million, are required to have an audit, but surely the FSA won’t call for a full-blown financial audit. It is more likely they will require an accountant’s certificate to show that the accounts have been prepared, or checked, by a ‘proper’ accountant, not scribbled on the bag of a fag packet by a bloke down the pub. This will be an extra cost for some, but at least Nanny Government will know better than the self-employed whether or not they can afford a mortgage.
What do you think? Are these measures actually a bit sensible, or are they pouring cold water on an already deflated and closed market?