The Financial Services Authority (FSA) has this week made new proposals to moderate lending, in particular to those seeking first time buyer mortgages.
Building on outline discussions held in October 2009, the FSA wants to make lenders responsible for ensuring that first time buyer mortgage deals are affordable for the borrower, on the basis of stricter affordability tests to vet the customer’s ability to pay.
First time buyers mortgages will also require much stricter verification of household income, which has been interpreted as a virtual ban on the self-certified first time buyer mortgages, where the customer’s word was taken as enough to obtain first time buyer mortgage deals. Such submissions based on trust were the basis of almost half of mortgage deals from 2007 to the beginning of 2010, said the FSA.
The same guidelines will also require lenders to modify their ‘fast track’ procedures designed to speed up offers to borrowers with good credit records. Now, a standard evaluation procedure may be applied to all borrowers, regardless of their good credit history, where everything must be documented and all boxes must be ticked.
Many homes overstretched by mortgage repayments
The FSA also found that in 2005-2010, 46% of UK households used up all their monthly income, of even had to raise extra cash or credit, to pay their mortgage and living costs.
The FSA has identified that many overstretched homeowners are depending on uncertain future life events, such as an increase in property values, as part of their strategy to repay their mortgage. Other borrowers have taken interest-only deals, which accounted for over 30% of the market in recent years.
“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back,” said Lesley Titcomb, FSA director for the mortgage market.
The FSA’s consultation document will now form the basis of a public debate, due for completion this coming November.
