FSA to bring in affordability tests for all mortgages
Share
The FSA has proposed that every mortgage should be submitted with proof of income in a bid to crack down on mortgage fraud, in a move that will effectively put an end to self-cert and fast-track mortgages.
The FSA is proposing even tougher affordabilty tests for borrowers with an impaired credit history.
The proposals form part of a major review by the regulator into the UK mortgage market and are published in a consultation paper out today.
The FSA’s recommendations are based on analysis of past lending decisions and the triggers for arrears and repossessions since 2005.
It found that between 2007 and Q1 2010 almost half of new mortgages were provided without a customer having to verify their income.
The regulator also found that interest-only mortgages accounted for over 30 per cent of the total UK mortgage market at the market’s peak.
Many consumers had been relying on rising house prices in order to repay their mortgage, while some had no repayment vehicle in place at all.
FSA director responsible for the mortgage market Lesley Titcomb says: “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.
“While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”
The consultation paper also found that arrears charges varied widely across the market, even though regulatory rules state that arrears charges should be based on a reasonable estimate of what it costs the lender to deal with a borrower in arrears.
The FSA is inviting industry feedback to the paper, with the consultation ending on November 16.
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page
Readers' comments (15)
Andrew Mallett | 13 Jul 2010 9:13 am
We still need to find a suitable way of assessing those people that run businesses. Having to base it on at least 2 yrs Net Profit is no way comparable to 3 mnths payslips for the employed. This anomaly is highlighted even more when an employee of a small business, that has only being going 18 mnths, still only has to provide 3 mnths payslips, even though the mainstay of that business is dependant on the business owner's success, and indeed the stability of the business. The employee gets a mortgage, the boss doesn't - fair?
Unsuitable or offensive? Report this comment
Chris F | 13 Jul 2010 9:19 am
One of our horses escaped last year. I am going to ring the FSA in around 6 months to see if they can help stop it getting out...
Unsuitable or offensive? Report this comment
Simon Chalk | 13 Jul 2010 9:22 am
Knowing that 30 per cent of mortgages have been conducted on an interest-only basis, often with no realistic plan to repay the loan, is already manifesting itself in the Equity Release sector. We are experiencing ever increasing enquiries from homeowners in their 60's and 70's who are carrying not insubstantial interest only mortgages well into their later life. You have to wonder how the next 10 to 20 years will pan out (with demand from such borrowers to switch to Equity Release) being met with insufficient supply. We can only encourage new providers to join the market as tremendous opportunities present themselves.
Unsuitable or offensive? Report this comment
Gareth Horsfall | 13 Jul 2010 9:23 am
I work in the International advice sector, mainly in Europe and although much stress is placed on the risky nature of UK banks it would seem to me that they are still some years ahead of their European mainland competitors. I am not advocating the ridiculous practice of self certification, but I often see (particularly in France and Italy), the situation where mortgages are offered way beyond retirement age and no evidence of ability to pay this back has been requested. In essence they are delaying the riskier practices for another generation to deal with. I have met a number of people who have very little retirement income at all but have a mortgage spanning well into their 70's. The UK banks are surely guily of bad practice and the FSA should certainly deal with this. A move to present and future affordability would seem a much more sensivle approach for asessing someones ability to repay a mortgage.
Unsuitable or offensive? Report this comment
Anonymous | 13 Jul 2010 9:26 am
Gate ... Horse .... Bolted... now which order do these go in ?
There may well be a need to address some of the excesses that have occurred in the mortgage lending arena of the last few years and some of the lenders have only themselves to blame - but the FSA are not addressing the WHOLE situation.
Are the FSA so stupid to think that " ...a clear link between financial overstretch and mortgage arrears and repossessions .. " is the only cause of peoples' debt problems ??!!
There needs to be a comprehensive COHESIVE strategy that addresses ALL debt problems.
Where is the FSA / government/ regulation / education on all other forms of debt creation. I see no mention of the loans, credit cards, store cards, loan sharks(legit or other wise !) etc. being addressed in this consultation.
After more than 20 years of being an IFA / mortgage broker / Debt counsellor it is quite clear to me that the FSA who actually say " it is clear the mortgage market has worked well for many" are hell bent on carrying on their 'same old same old' mantra. By squeezing one section of the credit industry they will just shift the most vulnerable to other parts of the credit industry. People are only human and if they want something they will, in isolation, easily take on more debt to satisfy their greed. It would be interesting to know how many of the people the FSA surveyed took on more and more debt and excessive spending AFTER they had taken on the mortgage - what kind of affordability checks were they taken through before they were given other debt ?? - you're alright Mr client - "the computer says YES !!!!"
Unsuitable or offensive? Report this comment
Anonymous | 13 Jul 2010 9:27 am
And what about people who run their financial lives differently to the herd? People who invest, people who use capital for outgoings while they pursue "projects", people who have wildly erratic earnings over years but who are ADULTS and can manage their finances....
as usual an overraction to problems they failed to prevent previosuly means more nanny state; why cant these small minded people simply let society and enterprise get on with things with caution and prudence yes, but withouth the restrictive imposition of mother knows best state-controlled trading...
Unsuitable or offensive? Report this comment
Anonymous | 13 Jul 2010 10:48 am
WHERE WAS THE FSA WHEN SELF CERT AND FAST TRACK FIRST CAME OUT? SHOULD HAVE BEEN NIPPED IN THE BUD THEN. HAD IT BEEN DONE THE MARKET WOULD HAVE REMAINED ORDERLY AND SECURITISATION FRENZY WOULD HAVE BEEN AVOIDED AND GLOBAL BANKING WOULD STILL BE HERE. SO WHY STOP HERE. WHY NOT DO THE FULL JOB NOW. WHY PUSSY FOOT AROUND AND THEN INTRODUCE NEW RULES 5 YEARS DOWN THE LINE. HERE'S WHAT YOU NEED TO DO.
1) STOP SELF CERT / FAST TRACK.
2) INCOME EVIDENCE TO BE ON FILE AND VERIFIED AGAINST BANK/TAX RECORDS
3) MORTGAGES TO BE ON REPAYMENT BASIS ONLY UNLESS BACKED BY A PENSION PLAN PROPER
4) BANKS SHOULD BE ABLE TO OFFER MORTGAGES WHERE THEY ARE AWARE OF WIDER PICTURE AND ACCEPT THE RISK AND PRICE IT ACCORDINGLY.
5) ASU /MPP TO BE COMPULSORY UNLESS MEDICAL CONDITIONS/JOB TYPE PREVENTS COVER
6) MORTGAGES TO BE PORTABLE AND NO FURTHER UNDERWRITING FOR SAME LOAN TRANSFER IF NOT IN ARREARS
7) LENDERS TO TAKE INTO ACCOUNT LAST YEARS CREDIT PROFILE INTO ACCOUNT. AFTER ALL WHAT RELEVANCE HAS A MISSED PAYMENT 43 YEARS AGO TO TODAY?? ITS A LENDER SCAM TO CHG MORE INTEREST UNDER THE SUB-PRIME REGIME. IF A CLIENT HAS A CCJ, WHETHER IT HAS BEEN SATISFIED FULLY OR NOT, HOW DOES THAT AFFECT A BORROWERS ABILITY OR DESIRE TO KEEP UP HIS MORTGAGE REPAYMENT??
PLEASE REFER TO THIS POST IN 5 YEARS... AND LETS SEE HOW MUCH COMES INTO FORCE
Unsuitable or offensive? Report this comment
Julian Stevens | 13 Jul 2010 11:49 am
Only 6 years late ~ another triumph of timely and forward looking regulation (not).
In case you bozos at Canary Wharf hadn't noticed, the brown stuff hit the fan about 18 months ago and getting a mortgage now is harder than it's ever been because the lenders have, of their own accord, swung from laissez faire to extremely stringent underwriting of mortgage applications.
Unsuitable or offensive? Report this comment
Exasperated me | 13 Jul 2010 11:50 am
They couldn't regulate a booze-up in a brewery.
Exasperating stuff...
Frustrating stuff...
The stuff of nightmares...
The UK is stuffed, by regulators who are woken up by the politicians and given a few sheets of paper and told to make some new regulations up, after the event.
What a shambles.
Unsuitable or offensive? Report this comment
You must be joking | 13 Jul 2010 2:27 pm
Oh, great idea, let us take a 'snap shot' of affordability at the date of application... that'll work out just fine to justify a 25 year commitment!
This 'simplistic view' of the problems with the mortgage market will only work if ALL of the following can be guaranteed:
Earnings will NEVER reduce in real
Work will NEVER cease
Interest rates will NEVER rise
Mortgagees will NEVER change their spending habits
In a FREE MARKET, people make money, people lose money and occassionaly the S**t hits the fan - that's life unfortunately.
This feeble attempt at 'full certification' won't change anything UNLESS all of teh above can also be addressed.
Unsuitable or offensive? Report this comment