UK mortgage market review
(20 October 2009 – UK) The Financial Services Authority (FSA) UK has said that it plans to make regulation of home loans more ‘intrusive and interventionist’, subjecting borrowers to mortgage affordability tests.
The FSA, in its recent mortgage market review, outlined a series of proposals for increasing regulation in the mortgage market.
Self-certification mortgages will be banned under the proposals, with lenders required to verify borrowers' incomes, while all borrowers will have to show they have sufficient spare income to finance the repayment of their new home loans.
The FSA has not pursued a ban on 100 percent mortgages, or any limit on loan-to-value levels.
There was also no ban on loans over a certain multiple of borrowers' incomes but caps would be reviewed in the future if the desired effect was not achieved from the current proposals.
The ‘intrusive and interventionist’ plans include making lenders responsible for assessing consumers’ ability to pay by studying their monthly disposable incomes and banning the sale of high loan-to-value loans to a consumer with poor credit history.
They also include making arrangements with borrowers who are behind to pay the arrears without charges if they stick to an agreement and extending the policing of the industry by the FSA to all mortgage advisors and arrangers.
Hector Sants, chief executive, FSA, told the BBC that some consumers who were able to get home loans in the boom would no longer be able to under the proposed rules.
The FSA thinks that it is important to recognise that both firms and consumers don’t always make the best decisions. They don't always act in their best interest or indeed in the best collective interest of society. So the government needs a new approach to regulation, Mr Sants added.
Self-certification mortgages will be banned under the proposals, with lenders required to verify borrowers' incomes, while all borrowers will have to show they have sufficient spare income to finance the repayment of their new home loans.
The FSA has not pursued a ban on 100 percent mortgages, or any limit on loan-to-value levels.
There was also no ban on loans over a certain multiple of borrowers' incomes but caps would be reviewed in the future if the desired effect was not achieved from the current proposals.
The ‘intrusive and interventionist’ plans include making lenders responsible for assessing consumers’ ability to pay by studying their monthly disposable incomes and banning the sale of high loan-to-value loans to a consumer with poor credit history.
They also include making arrangements with borrowers who are behind to pay the arrears without charges if they stick to an agreement and extending the policing of the industry by the FSA to all mortgage advisors and arrangers.
Hector Sants, chief executive, FSA, told the BBC that some consumers who were able to get home loans in the boom would no longer be able to under the proposed rules.
The FSA thinks that it is important to recognise that both firms and consumers don’t always make the best decisions. They don't always act in their best interest or indeed in the best collective interest of society. So the government needs a new approach to regulation, Mr Sants added.
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