MORTGAGElending
Responsible Lending
Alistair Bertrand looks at changes to the FSA and the effect on the housing market.
The Financial Services
Authority has set out proposals to reform the mortgage market in its Mortgage Market Review – Responsible
Lending. The proposals have been prepared to regulate the mortgage market providing for responsible lending and preventing problems from developing or getting out of control. There has been varying opinion as to what effect these reforms may have if implemented. The FSA wants the review to “address
the major failures that have occurred in the mortgage market and to replace risky lending and unaffordable borrowing with common sense standards.” In preparing this document the FSA
reviewed past lending decisions and looked at the causes of arrears and repossessions since 2005. The FSA has said that the proposals are
measures that would address the issues in the market whilst at the same time as keeping the market vibrant and sustainable. Lesley Titcomb, FSA Director responsible
The FSA Found ThAT:
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46 per cent of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income
Almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income
The number of shared ownership mortgages has increased, peaking at 30 per cent at the height of the market
Many customers with no repayment vehicle count on future house price rises or uncertain life events to repay their mortgage and some have no plan at all
Borrowers with a credit-impaired history are particularly vulnerable
30 FEBRUARY 2011 PROPERTYdrum
for the mortgage market, sees the clear link between financial overstretch and mortgage arrears and repossessions. As a result the FSA is determined to ensure that everyone who takes out a mortgage can afford to pay it back.
The FSA sees the clear link between financial overstretch and
mortgage arrears and repossessions. The FSA is determined to ensure that everyone who takes out a mortgage can afford to pay it back. leSley TiTComb FSA direCTor
drAConiAn or neCeSSAry? Regulation to the mortgage market is seen as necessary by most commentators, though it is felt by some that this may not
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be the right time to bring in such drastic changes as they could further slow the property market. Others welcome the proposals, while some feel that the changes go far enough. Stewart Baseley, Executive Chairman
of the House Builders Federation has said that lenders should lend responsibly and the FSA has a responsibility to regulate that lending. He, however, believes that “these disproportionately severe proposals would have implications far beyond that and they risk destabilising the already fragile housing market still further. The social and economic implications of delivering fewer homes at a time where we already have an acute housing shortage are dire.” Steve Morgan, Chairman of Redrow
Homes has said that, “deliberately suppressing housing demand at the very time that the country has a chronic housing shortage is laying the foundation for the next boom/bust cycle.” He says that first time buyers are being denied what their parents and grandparents took for granted as they are unable to secure an affordable mortgage with a modest deposit.
The mAin propoSAlS SeT ouT by The FSA:
The imposing of affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay
The banning ‘self-cert’ mortgages through required verification of borrowers’ income
The banning the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk
The banning of arrears charges when a borrower is already repaying, ensuring firms do not profit from people in arrears
The requirement for all mortgage advisers to be personally accountable to the FSA
Calling for the FSA’s scope to cover buy-to-let and all lending secured on a home.
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