Homeowners could find that they are no longer able to borrow so much, arrange a mortgage as quickly or remortgage quite so easily, once new regulations come into force.
The Financial Services Authority has put forward proposals designed to curb excessive mortgage lending. But mortgage brokers have warned that these rules could restrict some people’s ability to get a competitive home loan.
Worst affected are likely to be the self-employed, as the FSA is proposing that so-called “self-cert” loans be banned completely.
These loans did not require borrowers to prove their stated income. While this may have been useful for the self-employed who didn’t have payslips or three years’ worth of audited accounts, their popularity at the height of the housing boom led to them being dubbed “liars’ loans” as they were widely used by borrowers to inflate their income and secure the necessary mortgage finance, even if this left them overstretched and struggling to repay bills.
There will also be a crackdown on the number of borrowers taking out interest-only loans, without any obvious way of repaying the capital.
The main thrust of the FSA proposals is to ensure banks and building societies lend responsibly, by verifying the information provided is correct, and checking mortgage repayments are affordable – which seems hard to quibble with.
But anyone who has ever had to complete a mortgage application form might be under the illusion that banks already make such checks, particularly as lenders have become increasingly picky about how much they will advance, and to whom.
But according to the FSA’s own figures these checks do not appear to have been rigorous enough. The regulator found that almost half of all households have (46pc) have either no spare cash at all – or have a shortfall – once the mortgage, essential bills and living costs have been paid each month. Even more startling is the figure that 43pc of all new mortgages were advanced without consumers having to verify their income.
Since the credit crunch nervous lenders have been reluctant to offer “self-cert” deals, but many have still been happy to “fast-track” standard mortgages to customer with good credit histories and substantial equity in their home. With these mortgages it is generally up to the mortgage broker to verify the key facts, such as the income stated.
If “fast-track” mortgages disappear, many people will have to wait longer for a mortgage to be approved, and the cost of manually checking each application is likely to passed back to the consumer, via more expensive mortgage fees, according to Ray Boulger, of brokers John Charcol.
He added: “Banks may have already tightened their lending criteria but these proposals go further and will reduce the amount of money some people can borrow. While it may protect some vulnerable borrowers, others with good credit histories who are unlikely to default on repayments will also be adversely affected.”
Melanie Bien, a director of mortgage broker Private Finance added: “There will now be swathes of people who will struggle to get on the housing ladder or remortgage. Interest-only mortgages have been extremely useful to those who may be on low incomes initially but expect their salary to rise significantly – now they are unlikely to be offered such generous deals.”
By Emma Simon
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