John Charcol senior technical manager Ray Boulger says the FSA’s proposals for a cap on equity withdrawal will lead to severe consumer detriment.
In its mortgage market review last week, the FSA says it will look at whether there is a need to limit the amount of equity that a consumer can take from their home.
It says its early analysis suggests that equity withdrawal may conceal and exacerbate affordability problems because the cash might be used to repay outstanding mortgage debt, resulting in higher, less affordable mortgage payments.
It adds that external analysts consider the arrears’ performance of remortgages with equity withdrawal to be consistently worse than home purchases. It says: “One solution may be to limit the amount of equity a consumer can withdraw.”
Boulger says this is “a thoroughly bad idea” and would be impossible to police.
He says: “In practice, there will be severe consumer detriment if the FSA bans that, because the reason that people use equity withdrawal is to reduce their debt or to buy a car, for example. If they are no longer able to do this, then they would have to go to other sources of lending.
“People may end up moving house just so they can withdraw equity.”