New Mortgage Rules To Come Into Effect In 2013. Would You Agree That Common Sense Is At Last Coming To A Mortgage Town Near You?
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The key to the new proposals are what the FSA terms three main principles of good lending.
1) Lenders should assess affordability and only advance mortgages and loans where there is a reasonable expectation that the customer can repay without relying on uncertain future house price rises.
2) An affordability assessment must be done to allow for the possibility that interest rates might rise. Lenders will have to "stress-test" loans and calculate wither borrowers would still be able to afford them if interest rates were to rise in the next five years.
3) Thirdly, interest-only mortgages - which have forced many people into negative equity since the start of the recession and house price slump - should be assessed on a repayment basis unless there is a strategy for repaying out of capital resources.
Serial buy to let landlords wont like it as they would like to own 100 or more properties but I say good financial economics is the most important factor and in the best interests of a nation and its nationals. Otherwise the same old financial recipe would just bring back national financial distasters again and again. Good riddance to self-certified mortgages!
Responses (6)
Frankly I welcome a return to good, old fashioned lending where more 'guarantee' is built into the ability to repay long term, after all a mortgage is generally a long term commitment and the most serious borrowing that anyone can enter into. I heard on the news tonight that if the new rules had already been in place, some 250,000 loans would not have been granted this year so that, I suggest, is a serious indication of the difficulties ahead.
But I would hope that when these new proposals do begin to affect mortgage borrowing, it is followed by a rationalisation of house prices and a downward and stable trend in what future buyers will pay. I have never believed the hype that a flourishing housing market is an indicator of economic boom, in fact exactly the opposite as it has simply been storing up trouble.
I also believe that the proposals will have a radical effect on who can successfully borrow and how much. There was talk on the TV tonight of self-employed needing 50% deposits which of course was unheard of in the boom days. We can only wait and see how this affects the housing market but there is no doubt it will be marked, especially among first time buyers. The only way forward therefore must be in realisation that house prices have simply been far too high and that will not be an easy challenge to meet especially among the new builds.
And people will no longer be able to pose questions on mortgage availability on here simply due to the more rigorous financial assessments that will now be required.
Yes, CS, I would agree, but rules are only as good as their enforcement.
Too true..there's always someone who bends the rules just a touch here and there abd before you know it it will snowball and we'll be in the same situation again
My sentiments exactly. The rules will be so loosely applied, with so many loopholes to be exploited, that they may not be worth the FSA-headed paper they're printed on.
Something needs to be done that's for sure CS. I always thought no.2 was a common requisite.
I wonder why it disappeared as it makes perfect sense to ensure financial security before such an undertaking.
One would hope that the enforcement of the new rules will be self-fullfilling in some way. Lenders should be desperate to ensure that their business maintains good order and profit and FSA introducers will have little option but to comply for fear of losing their registration. I can see business running quite flat on the new proposals and that will always introduce the chance of 'creative accounting' whereby loans are granted on the back of fairy stories. That is of course a criminal act and one would hope that would be aggressively stamped on. There is a lot to be said for effective legislation in mortgage lending but will it stifle the life out of the housing market?
What I find most interesting is that there is a 2 year window before these rules come into force.
Two years?!!
Why does it take so long for common sense to be applied?
Clearly they are promoting a window of opportunity, where I feel that people will be encouraged to apply before the stricter rules are introduced.
Quite so, Parchy.
Absolutely. The worrying thing is that all the points are just pure commonsense and should have applied anyway
Why two years? Because the government, FSA and lenders are all hand in glove, unwilling to apply or accept any restraints to trade, so they dream up these schemes to make it look as though some action is being taken. Two key things - a long leadtime to introduce means plenty of time to continue making hay and you can bet it'll be a voluntary scheme.
This should always have been the case - it was slack lending practices which fuelled the ridiculous house price inflation booms and busts of the last 25 years. Back in the '70s one practically had to go down on one knee to a building society manager for a mortgage and affordability was the governing principle.
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Hear hear.... Do you get the feeling that these proposals will get watered down before they're applied?
Hi the truth and welcome to the forum ... I can only think that the proposals are so radical that they will not work well in their proposed form. They could completely stagnate the housing market and where do you go from there? It's a fine balance between responsible lending and lending that 'seals the deals'. I worked in mortgages in the late eighties and I was amazed how the 'want factor' overrode everything else .. and factor in estate agencies greed to sell at any price and you had the beginning of nightmare house prices. I fear for the first time buyers who may as well live on Venus if all this kicks in.
Thanks for the welcome Snoopy. Sadly, as UK house prices are currently too high (signified by the difficulty for new buyers to enter the market), the first thing that needs to happen is for prices to fall. This may mean that people who bought in the last few years (and paid too much) will suffer a bit of a financial haircut, but really... how stupid can people be? I know - that's a rhetorical question. The next thing that's needed is borrowers taking greater responsibility for their debts - a requirement for higher deposits would mean people having a greater incentive to stay solvent. As you and others pointed out, it all went wrong in the '80s and it needs to be put right again.
Just realised that I was repeating what you said in the first place vis a vis house prices - but only because I have the same opinion....
That's no problem thetruth! This is a very informal forum where we all try and use our experience to the best advantage but at the same time try to make sense of the issues in hand.
Again, I believe you are spot on about responsible borrowing as well as house prices need to fall as it should not be a market solely for the rich. Everyone deserves to have that 'feel good' factor in life but alas I don't think it will come back for many years.
Society is very much the author of it's own misfortune and to have allowed house prices to have risen by say 20% per annum in their heyday was complete madness. Great for existing homeowners but for others, the bottom rung of that ladder is oh so far away.