Equity withdrawal cap could kill remortgages

26 October 2009 | By Natalie Thomas, Natalie Thomas

Proposals in the Mortgage Market Review to limit the amount of equity borrowers can withdraw from their property value could kill the remortgage market and force people into the rental sector, industry pundits warn.

Last week the Financial Services Authority released its long-awaited review of the mortgage market and how it proposes to stop a further financial crisis.

But within the 118 page report, along with axing self-cert and regulating buy-to-let and second charge loans, the FSA says it will look at, “whether there is a need to limit the amount of equity a consumer can take from their home”.

Robert Sinclair, director of the Association of Mortgage Intermediaries, says: “Introducing a notional cash or percentage sum on how much a person can withdraw restricts borrowers and forces them to sell their property. I’m not sure that’s a society I want to live in. The FSA has not fully explained the reasoning behind it.”

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, says it would be difficult to decide in advance what an acceptable level of equity withdrawal would be.

He says: “I understand the argument but as home owners use this as a way of funding their next purchases it is fraught with problems. In essence it is a return to the past, where lenders’ utmost concern was why money was being borrowed.

“Perhaps this is another case of the FSA being more intrusive than it should be.”

AMI also believes that the proposal for lenders to take on the responsibility for affordability checks could result in brokers being paid trail commission for cases that stay on lenders’ books without incurring arrears. Sinclair says he does not think the proposals would lead to lenders shunning brokers.

Lenders will be required to retain adequate records of consumers’ ability to repay for a minimum of one year, while brokers have to keep them for three years.

But AMI also has concerns over plans for the individual registration of brokers and says there will need to be industry representation on the Professional Standards Board - the body that decides whether a broker is fit and proper.

Sinclair says: “It could set too high a benchmark. There’s a level that is aspirational but the problem with these bodies sometimes is that the aspirational becomes the norm.”

AMI will now work on its response to the review paper, which it will submit in the new year. It is understood that the FSA will release a number of consultation papers on the back of the review next March.

 

If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat