Tougher income checks if you want a mortgage
INTEREST ONLY mortgages will not be banned under new proposals published by the regulator today, but banks will have to be more careful to ensure borrowers can pay back the loans.
The richest borrowers will not need to go through extensive affordability checks under the new mortgage market review (MMR), while small changes to contracts will no longer need to go through the full advisory process, the Financial Services Authority (FSA) has announced.
And borrowers whose house price has fallen – so called “mortgage prisoners” – will now be able to move home as long as they take on no extra debt, in an exception to the wider responsible lending guidance.
Lenders praised the changes to the proposals, made after a lengthy consultation, as they remove some of the toughest restrictions which the FSA had initially planned.
“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,” said FSA managing director Martin Wheatley.
“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated. At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want.”
The Council of Mortgage Lenders praised the “extensive” consultation, and welcomed “the FSA’s responsiveness in moderating a number of rules as originally drafted that would have been difficult to implement in practice, or unduly restrictive.”
However, some analysts warned that the proposals come too late for customers who already have an interest-only mortgage.
“The problem with the FSA’s interest-only proposals is they just close the door after the horse has bolted. They don’t solve the real problem, which is the outstanding balances of existing interest-only mortgages, not assessment criteria for new ones,” said e.surv chartered surveyors’ Richard Sexton.
“Swathes of borrowers were granted interest-only mortgages when they couldn’t afford them. Now house prices have fallen sharply, lenders and borrowers are up the proverbial creek without a paddle.”