1. ITV Report

Tougher rules on mortgages to hit first-time buyers and borrowers in their 50s

People in their 50s could struggle to get a mortgage under the new rules Photo: PA Archive

New rules on mortgage lending that could prove problematic for those trying to get on the property ladder are due to be announced today.

The Financial Services Authority (FSA) is expected to say that lenders will be unable to agree a mortgage unless a homeowner can repay it before they are 70 or 75.

This could cause difficulties for people in their 50s trying to get a mortgage, as most loan terms are for 25 years, reports the Daily Mail.

The new lending rules to make sure borrowers can only take out deals they can afford and prevent any return to irresponsible lending have been outlined by the financial services regulator.

  • Last year, a house was worth around five times the buyer's income on average, compared with 3.7 times a decade ago.
  • Shelter found last year that 42% of borrowers sometimes found it hard to make mortgage payments, with 14% struggling constantly.
  • The regulator estimated that as a result of lenders already tightening their borrowing criteria, up to 45% of borrowers who had taken out a deal since 2005 could be mortgage prisoners.
  • Roughly half of them were thought to be trapped due to their credit problems and the other half because interest-only and low-deposit deals had become more restricted.

The shake-up, which comes into force in April 2014, is the result of a long-running review by the Financial Services Authority (FSA), aiming to put "common-sense" at the heart of the market.

First time buyers are likely to be affected Credit: Danny Lawson/PA Wire

The FSA also announced a new rule which takes effect from today, stating that lenders must not take advantage of a borrower who cannot get a mortgage elsewhere by treating them less favourably than other similar customers, for example by offering them a worse interest rate or terms.

It said this would help protect people who were already stuck with their current lenders, as well as those who may become trapped when the new rules came in.

From 2014, lenders will need to consider a borrower's income and outgoings and interest-only mortgages will only be offered to people with a firm repayment plan, rather than relying on hopes that house prices will rise.

They will also have to factor in the impact that future interest rate increases could have on repayment costs.

The new rules will affect the nine million UK households which have a mortgage as well as many people in the rental sector who are already struggling to buy a home.

The FSA insisted its rules would not stop lenders being able to offer low-deposit mortgages to first-time buyers and there would be no upper age limits imposed.

The new rules will attempt to put 'common-sense' back into the market Credit: Chris Ison/PA Wire

New regulations will also include a crackdown on interest-only mortgages, a favourite of first-time buyers as they only require payment of interest on the loan, not the actual loan sum itself.

But lenders will now have to demand that homeowners with interest-only mortgages build separate savings to pay off the loan itself, the Council of Mortgage Lenders said.

Checks will also be made during the term of the mortgage to make sure the savings fund is still in place.

The clampdown follows the property boom when buyers stretched their finances Credit: PA Wire

The raft of restrictions are set to be placed on mortgage loans due to a clampdown by the FSA on irresponsible lending, to make sure borrowers can only take out deals they can afford.

Such deals allow borrowers to pay off the capital only when the mortgage term ends, but lenders have abruptly cut back on them amid concerns people cannot afford to pay them back.

The FSA is looking at how many interest-only borrowers will be unable to repay their loans and plans to publish its findings next spring.

The clampdown follows a period during the property boom when would-be buyers increasingly stretched their finances to get on the ladder.