FSA outlines its crackdown on mortgages
CITY watchdog the Financial Services Authority (FSA) has unveiled a crackdown on the mortgage-lending market that includes plans to ban the self-certification loan industry.
FSA chief executive Hector Sants unveiled a range of proposals including a ban on the self-cert, or “liar loans” industry, where borrowers are able to get mortgages without giving proof of their income.
He proposed new rules forcing lenders to closely vet all mortgage applicants before handing out loans. The plans – which reflect the FSA’s increasingly hands-on approach after it was criticised in the aftermath of the credit crunch – also call for the regulator’s scope to extend to buy-to-let mortgages.
But, Sants has stopped short of capping loan-to-property price ratios, meaning lenders will still be able to issue 100 per cent mortgages.
The crackdown comes after a bubble in housing prices caused by excessive mortgage lending collapsed in 2007.
The British Bankers’ Association said: “Any new rules must not serve to create unreasonable obstacles either for lenders or for borrowers.”
Building Societies Association head of mortgage policy Paul Broadhead expressed “significant reservations”.
“We need a sensible balance between appropriate regulation and allowing people to buy their own home when they can afford to do so,” he said.
Robert Sinclair, director of the Association of Mortgage Intermediaries, criticised the self-cert ban, saying the products were “right for some people”.
And Liberal Democrat Treasury spokesman Vince Cable said: “With such a complex mortgage market already in existence highly prescriptive rules for mortgage affordability are not appropriate.”
AT A GLANCE: MORTGAGE MARKET REVIEW
WHAT TYPE OF FIRMS WILL BE AFFECTED?
&9679; Building societies, mortgage lenders, financial advisers, mortgage arrangers and mortgage administrators could all be affected
WHAT IS IN THE PROPOSALS THAT COULD AFFECT HOW THESE FIRMS DO BUSINESS?
&9679; A ban on self-certification and a requirement for income verification for all mortgages
&9679; A rule making lenders ultimately responsible for affordability assessments
&9679; A prescription for the affordability assessments which lenders must make
&9679; Rules insisting that the affordability of interest-only mortgages be assessed on a capital-
repayment basis
&9679; Rules prohibiting loans being made to consumers who have low borrowing capacity
&9679; Rules prohibiting loans that offer a mix of high-risk characteristics
&9679; A boost of the FSA’s arrears rules and ban on some of the existing unfair charging practices
&9679; An extension of the Approved Persons regime
&9679; Plans to focus more on early disclosure of key service information in the FSA’s disclosure rules
&9679; An extension of regulation covering the buy-to-let market
WILL THE FSA CAP LOAN-TO-VALUE LEVELS?
&9679; No, there will be no rules preventing mortgages where lenders lend the entire value of a house – or even more – to customers
Will the proposals hit house prices?
&9679; It is possible. By limiting the number of people who can get the credit to join the housing market, the FSAcould damage demand
WHY IS THE FSA REVAMPING THE RULES?
&9679; Its previous approach to lending rules has been blamed for the excessive mortgage lending that contributed to the recent property market crash
WHAT SHOULD I DO NEXT?
&9679; The FSAis calling for a “wide-ranging debate” to inform its thinking on mortgages and you can respond online on the FSAwebsite.
&9679; Itis also hosting roadshows on the mortgage review, with the opportunity to offer feedback