New FSA regulation threatens mortgage cap
Proposals from the Financial Services Authority (FSA) on future regulation of the UK banking sector include the possibility of a cap on mortgages, in terms of their loan-to-value (LTV) or loan-to-income ratios.
The woes of the recession are linked to a decade of house price inflation fuelled by irresponsible lending by banks and others and epitomised in the 125% mortgage once offered by Northern Rock.
LTVs are already under intense scrutiny by lenders wary of negative equity as house prices continue to fall.
The best deals require a 40% deposit and few high LTV home loans remain.
The FSA’s proposals could potential ban the 100% home loan, which would restrict the number of first-time buyers entering the property market once the credit crisis eases and delay a recovery in confidence and prices.
The Government is clearly keen to make the UK’s beleaguered residential property market accessible to first-time buyers, as state-owned Northern Rock recently announced that it will begin offering 90% LTV home loans this year.
Meanwhile, latest figures from the Council of Mortgage Lenders (CML) show that in January, mortgage lending activity continued to decline with only 23,400 loans for house purchase completed, down from 48,600 in January 2008.
According to the CML, there were only 8,900 loans to first-time buyers during the month, down from 18,000 a year earlier.