Self-cert, interest only and high LTV mortgages defended

Proposed new rules on mortgage lending from the Financial Services Authority (FSA) have received broad comment.

The regulator claims that almost half of new mortgages approved between 2007 and the first quarter of 2010 were provided without verification of income.

It therefore wants to impose affordability tests for all mortgages, making lenders ultimately responsible for assessing a consumer’s ability to pay and for verifying borrowers’ incomes in every case.

According to Hamptons International head of research, Adam Challis, while reforms are necessary, self-certification mortgages are an important tool for the self-employed, or for sales people that rely heavily on bonuses to make up their income.

Regarding the impact of the proposed new measures on interest only mortgage availability, Mr Challis says the loans are used heavily by investors who are “an essential part of the funding approach for new housing”.

He suggests that fewer interest-only loans at such a fragile stage in the housing market recovery would place unnecessary constraints on housing supply.

Meanwhile, Genworth’s president of mortgage insurance, Europe, Angel Mas, believes high loan-to-value (LTV) mortgages should be used responsibly by lenders to ensure that people with a good credit profile can get on the property ladder.

He therefore advocates the introduction of universal mortgage indemnity insurance for high LTV mortgages explaining: “By accepting this risk, specialist insurers such as Genworth provide a ‘second pair of eyes’ to facilitate higher standards of mortgage origination, with lower levels of default.”

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