Lending regulations will provide no boost to housing market say financial advisers

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New rules on mortgage lending published by the Financial Services Authority today will do “nothing to re-invigorate the housing market” according to financial adviser working in the market.

The publication of the FSA’s long-awaited review of the regulation of mortgage lending, carried out in response to the excesses of the pre-2008 boom, will see mortgage lenders forced to independently verify every home buyer’s income before loaning them money.

In addition, buyers of interest-only mortgages must be able to demonstrate a viable repayment strategy that doesn’t rely on rising house prices before being granted a mortgage.

Some housebuilders have been concerned that the tougher regulations will prompt a downturn in the housing market, however the proposals have been severely watered down since they were originally floated in 2009.

Peter Williams, executive director at the Intermediary Mortgage Lenders Association said the rules included some “good sense” and much that was already standard practice amongst lenders.

He added: “The FSA has made adjustments in the light of industry feedback and our initial view is that its new rules will not damage the market but that they will also do little to reinvigorate a housing market that remains at a low ebb. Given the UK needs to see sustained economic growth and within that a growing and competitive mortgage market it is hard to see these rules bringing new vitality to the market.”

Stewart Baseley, executive chair of the Home Builders’ Federation, said: “We welcome that the FSA listened to the considerable concerns about its initial proposals and that the final requirements are significantly less onerous.

“A lack of mortgage supply is the largest constraint on housing provision and it is imperative nothing exacerbates the situation.  Regulations must ensure that whilst mortgage lenders don’t lend to people who can’t afford it, they don’t prevent lending to those that can.”

Paul Smee, CML director general, said the rules would “bring clarity”.

The new rules are as follows: 

  • All customers will need to satisfy lenders that they can afford the mortgage, and provide evidence of their income.
  • The new rules do not prevent higher loan to value mortgages being offered to first time buyers - .
  • Lenders can ‘switch off’ the affordability and interest-only requirements for existing borrowers who want to get a new mortgage for the same amount or less. Lenders will, with immediate effect, be prevented from treating these customers less favourably than other customers.
  • Lending to older consumers beyond retirement is not prevented
  • Flexibility to decide what type of evidence of income to accept from self-employed customers.
  • Customers who are exercising their right-to-buy will always be required to get mortgage advice.
  • Customers who are getting a shared equity loan to assist in their property purchase will need to be able to afford the payments on the shared equity loan as well as their mortgage.
  • Customers with an impaired credit history will not be prevented from getting a mortgage, as long as they can afford it. Where they are consolidating debt they must get advice.

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