MORTGAGElending
Shelter says that a growing number of people are struggling to stay afloat. 3.7 million households (15%) said they constantly struggle to pay their rent or mortgage, an increase of almost double since October last year (8%).
Sarah Webb, Chief Executive of the
Chartered Institute of Housing, believes there is a need for better mortgage lending. She believes the proposals will prevent many households who could afford a mortgage from purchasing a home. Peter Bolton King, CEO at the NAEA
believes that the decline of both buyers and sellers during the past few months is due to restrictive lending criteria. Further regulation would only exacerbate this. The Home Builders Federation’s
independent research shows that if the FSA’s draconian proposals had already been implemented, of the 11 million current mortgage holders nearly half would not have been able to borrow what they did and up to a quarter may not have been able to borrow anything at all. In the future it says that an estimated 153,000 fewer house purchases would take place each year. The HBF also warned that unless the
FSA changes its view that lending on shared ownership properties is sub-prime, banks will continue to turn away £240 million of valid business. In 2009/ 2010, this resulted in 4,600 low cost homes being
left vacant. This is despite the fact that 110,000 households had applied to move into them. It also warned that 57,000 first time buyers’ would be refused mortgages. According to Henry Pryor of website
Housingexpert, tighter lending criteria could knock the housing market for six. “Removing any of the rare buyers that can participate in the market would obviously reduce demand and could trigger a collapse in prices. Although prices have recovered some ground, they are still 15 per cent down on the peak. Having given banks a heap of taxpayers’ cash with instructions to ‘get lending again’, the government now appears to want to restrict them from actually doing so.”
‘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.’ STeVe MoRGaN ChaiRMaN, ReDRoW hoMeS
The FSA review found that in 2007 and
2008 about half of new mortgages were approved without income checks. Of these, over 20 per cent have fallen into arrears; more than three times the proportion of mortgages where income was verified. This, together with the level of households with either no money left or with a shortfall after mortgage payment and living costs, is a source of a future mortgage crisis. Shelter welcomed the measures set out
by the FSA, saying that the FSA is finally looking at remedying the problems after
failing to do anything in the good times when it allowed mortgages at 125 per cent of the value of homes, at six times the borrowers’ salaries or allowing mortgages to be provided with no proof of income. It welcomed the evidence-based
approach the FSA has taken in formulating its proposals. It believes more effective and interventionist regulation of mortgage lending can make a vital contribution to stabilising the over inflated and volatile housing market, embedding responsibility and sustainability into home ownership whilst also reducing indebtedness. Shelter says that the proposals will help
close off opportunities for irresponsible borrowing. In particular, the measures removing self-certification mortgages and introducing mandatory income verification will regulate this. The proposed interest rate rise buffer and the requirement for a 20 per cent affordability buffer for credit- impaired borrowers will help. Rises in interest rates and changes in borrowers circumstances would be taken into account, diminishing the risk to borrowers.
Too liTTle, Too laTe? But do these reforms really go far enough? Is it a case of too little too late? Banks and building societies tightened their lending criteria significantly in the wake of the credit crunch, with borrowers now needing deposits of 40 per cent to qualify for the most competitive rates in many cases. Net mortgage lending, which strips out redemptions and repayments, fell to £9 billion in 2010, well down on £110 billion in 2006 before the beginning of the credit crunch. It is expected to fall further during 2011 to £6 billion, which would be the lowest level of lending since 1980. But the FSA proposals are seen by some
as too modest. Self-certification of income now accounts for a minority of residential
Housing Minister Grant Shapps said that lending reforms being put forward by the Financial Services Authority must not be so severe that they exacerbate an already difficult situation for potential buyers. He claims that under the proposed rules he would not be able to get a mortgage on his home, despite being a well-paid minister in his forties.
PROPERTYdrum FEBRUARY 2011 31
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