The Financial Services Authority (FSA) have delivered another blow to conveyancing solicitors as they bring in tough new rules which will see many homeowners unable to release equity in their properties.
Utilising equity in property has long been a “fashionable” way of raising extra funds to pay off debts or funding home improvements but strict new tests are being put in place to ensure that homeowners can afford the repayments. Essentially, banking on rising house prices to pay the bills will be a thing of the past.
These tough new rules are likely to end the remortgage boom which has seen billions of equity being withdrawn by homeowners keen to take advantage of rising property values.
Stricter lending criteria on remortgages is likely to put an end to the current remortgaging boom which will see remortgage levels drop off and means fewer cases for conveyancing solicitors.
The FSA announced the shake-up before Christmas and the intended outcome is reported as prevention of irresponsible lending.
From 2013 the new tests will require homeowners seeking a bigger loan to show that they can meet the repayments.
Those who regularly remortgage their property to pay back debts will be most at risk when the new rules come into force as they are more likely to fall into more debt as they struggle to pay back loans and credit cards.
According to the FSA it is estimated that 1.8 million homeowners have missed at least one repayment at some point but the FSA say they are not looking to stop homeowners from releasing equity, they simply want more control over how “vulnerable” customers are assessed.
How could these tough new rules affect your firm?
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