The FSA’s final rules under the Mortgage Market Review proved that the days of easy and affordable credit are long gone.
Lenders will further tighten the reins on borrowers by ensuring they abide by much stricter mortgage criteria, in a drive to ensure that inadequate standards are a thing of the past.
The FSA’s proposals are designed to serve the interests of both lenders and borrowers and should be engrained into the system as common sense principles.
In my view they are highly rational safety measures. It’s essential we ensure better practice becomes the norm as memories of the credit crunch fade, protecting future borrowers from lending which is not in their best interests.
Banks will have to carry out affordability tests on potential buyers assessing their income and outgoings, as many lenders already do.
Customers will be expected to prove their earning levels, which may include more detailed questions and will effectively abolish self-cert mortgages. The potential impact of rising interest rates will be taken into account and thirdly, interest-only mortgages will be offered much more cautiously in order to help reduce high-risk lending. Most lenders have already put certain changes into practice, with some already imposing tight restrictions on interest-only mortgages, with NatWest last week joining Nationwide and Co-operative Bank in ruling them out altogether.
Many welcome the overall changes, believing proposals for banks to conduct an affordability test will protect people from reckless lending. But the regulator must make sure banks are fair to struggling borrowers trapped on SVRs and exposed to rising mortgage payments. It is crucial that lenders do not completely stifle the market for self-employed borrowers or first-time buyers and the new rules must be implemented in such a way as to protect the existing lending market, which is still a long way from recovery.