20th December 2011
Among the most important reforms in the Mortgage Market Review, mortgage lenders will have to scrutinise household spending to see if borrowers can afford repayments, look very carefully at mortgages offered to those in their 50s and make sure there is a credible plan to repay the full loan if the mortgage is an interest-only one. Prior to this reform, brokers had to consider affordability.
Now affordability is the sole responsibility of lenders. There will also be tighter restrictions on mortgage advice.
Where a borrower is helped by telephone or through online questions they must be given full mortgage advice.
Taking mortgage advice will also compulsory for ‘vulnerable consumers' i.e. those taking out equity release, sale and rent back or borrowing as part of debt consolidation, although following the advice is not compulsory.
Mortgage access restricted?
On some assessments, the measures could hugely restrict the number of people obtaining mortgages.
The Daily Mail suggests that the reforms could see a million people denied mortgages with its calculations extrapolated from those of the regulator itself.
"The watchdog's own impact assessment has revealed that the plans could hamper growth by stripping £2.9billion out of the economy and lead to a dramatic drop in mortgage applications.
"An estimated 225,000 mortgage holders would be turned down for mortgages or be granted a smaller one than they need if the new proposals already applied.
"This could hit one million – more than a tenth of the country's nine million mortgage holders – if Britain were to experience the sort of housing boom seen between 2005 to 2007.
House prices lower
Mortgage Strategy writes that FSA predicts that house prices will be at least 11 per cent less in 2022 because of the changes.
It says house price growth between 2014 and 2022 will slow from 34 per cent to 23 per cent because of reduced access to home loans.
But some commentators say the price is worth paying.
On This is Money, Simon Lambert argues that: "The boom may have seen the madness of 100%-plus mortgages but this was only a tiny part of the market and the bigger problem was ‘pile-em high, sell-em cheap' supermarket-style mortgage pricing – with some home loans sold almost as loss-leaders.
"An industry that behaved like this just a few short years ago needs tougher rules. And a plan to check through people's finances, see what they spend out of their earnings and whether they can afford their mortgage if interest rates rise, is just common sense."
End of self cert and fast track
FTAdviser reports the end of self cert and fast track mortgages where self employed borrowers and indeed some employed ones could, to all intents and purposes, state their own income. The website hones in on the following FSA quote.
"This will mean the end of self-certification mortgages, and also the end of ‘fast-tracked' mortgages, an accelerated approval process under which verification of income may not be required at the lender's discretion We stress here that we have no intention of preventing or making it more difficult for self-employed consumers or those with fixed term contracts, who can afford it, from getting a mortgage."
Help for mortgage prisoners
Mortgage Introducer writes that there will be help for ‘mortgage prisoners' i.e. those who have taken out mortgages based on looser criteria in the past that are having trouble remortgaging now. The FSA suggests that they may be able to borrow not under the new affordability criteria, but possibly on the basis of their repayment history.
The website writes: "To benefit from this the borrower must be able to demonstrate a good payment history covering at least the last 12 months; must not be seeking to borrow additional sums; and the monthly payment under the new mortgage must be the same as or lower than their current payment. The FSA said this would not restrict borrowers to staying with their existing lender but would mean they could remortgage with a competitor."
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