Mortgage guidelines toughened by FSA

Lenders have welcomed the new FSA rules published yesterday that seek to tackle irresponsible lending.

The policies have toughened mortgage lending rules to make sure borrowers can only take out deals they can afford.

The aim is to prevent any return to irresponsible lending with self-certified mortgages being outlawed.

Paul Broadhead, Head of Mortgage Policy at the Building Societies Association said: "These new mortgage rules will apply from April 2014 and no one can argue with the objective that lenders lend what consumers can afford to repay.

“It is common sense that a mortgage should be repayable from income, rather than rely on increasing property prices and this is the approach that building societies and other mutual lenders already take.”

After a consultation, the FSA decided not to impose any restrictions on high loan-to-value deals, as they are vital for first-time buyers.

Interest-only deals, over which there was debate, will be permitted but only if the borrower can demonstrate a credible repayment strategy that does not rely on house prices rising.

The repayment strategy will also be reviewed by the lender during the loan period.

Mr Broadhead welcomed this approach, saying: "There has been a lot of speculation about whether the FSA wants to see interest only remain as an option for new mortgages.

“It is good to have had confirmation now that they accept that it can be the right product for some people.

"The key will be that the borrower has a sensible repayment strategy in place – relying on rising property prices and sale at the end of the mortgage term won’t wash."

Alongside income and affordability checks, the FSA will require lenders to ensure borrowers can cope with higher interest rates.

The regulator has estimated that its new rules will affect up to 11.3pc of borrowers, or as many as 1.2m of the 11.2m outstanding mortgages in the UK.

The Council of Mortgage Lenders welcomes the certainty that the FSA’s publication of the final rules brings.

Paul Smee, CML director general, said: “Lenders can now make firm plans to ensure that they meet the new requirements when they formally come into place in April 2014.

“In practical terms, the regulatory changes have already been widely anticipated and so are unlikely to create any significant additional or unexpected impacts.

"We look forward to working towards implementation with the FSA and its successor, the FCA, and hope that from a supervisory perspective the regulator will focus just as much on helping lenders and brokers to meet regulatory expectations as on enforcement action if rules are broken."

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