Stricter mortgage rules delayed until 2014

| October 25, 2012 | 0 Comments
Stricter mortgage rules delayed until 2014

The Financial Services Authority (FSA) has confirmed that it will introduce rules designed to prevent irresponsible mortgage lending, but it has put back the date for their introduction from summer 2013 to April 2014.

Under the tighter regulations, which follow the FSA’s Mortgage Market Review, lenders will have to carry out a more in-depth assessment of a borrower’s ability to repay, before a mortgage is approve.

The new rules are designed to prevent lenders returning to the risky lending practices employed before the financial crash in 2008, when very limited checks were made on borrowers’ finances.

Self-certified mortgages, which allowed prospective borrowers to over-state their level of income will be banned, as they led to loans being made which totalled many multiples of the applicant’s income.

Since the credit crunch many lenders have already introduced stricter mortgage lending criteria.

Martin Wheatley, managing director of the FSA, said: “We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.

“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated.”

People applying to take out an interest-only mortgage will have to prove that they have a plan in place to repay the capital at the end of the mortgage term, rather than just relying on rising house prices.

Paul Smee, director general of the Council of Mortgage Lenders, said: “In practical terms, the regulatory changes have already been widely anticipated and so are unlikely to create any significant additional or unexpected impacts.”

Meanwhile, property data network Xit2 has estimated that more than one million borrowers with interest-only mortgages due for repayment in the next eight years, do not have a savings plan in place to repay the capital.

This will leave their homes at risk of repossession at the end of the mortgage term.

Mark Blackwell, managing director of xit2 said: “The block of interest-only mortgages issued in the mid-2000s represent a dangerous legacy from the pre-crunch boom.”

Many lenders no longer offer interest-only mortgages.

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