Tougher rules on mortgages

Tougher mortgage rules to make sure borrowers can only take out deals they can afford have been outlined by the financial services regulator. The shake-up, which comes into force in April 2014, is the result of a long-running review by the FSA.

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Shelter: Mortgage rules will protect families from unsustainable debt

We very much welcome the role this review will play in protecting families from taking on debts that are simply not sustainable.

At Shelter we know only too well the damage that reckless lending can cause and the lives that are ripped apart by the pain of repossession.

The biggest barrier to home ownership in this country is not regulation of the mortgage market, but the sky high cost of housing due to decades of under-investment in building new homes.

– Campbell Robb, chief executive of Shelter

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Lenders call for clarity on new mortgage rules

The Council of Mortgage Lenders (CML) previously raised concerns that many more existing borrowers could find themselves trapped under the new rules.

The FSA has now altered its plans so that lenders would be able to "switch off" the requirements for existing borrowers who wanted to get a new mortgage for the same amount or less, provided they had a good repayment history.

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

FSA warned of mortgage 'ticking time bomb'

The FSA has previously warned that a "ticking time bomb" has been created over the last 20 years, with an estimated 1.5 million interest-only loans worth around £120 billion due for repayment in the next decade.

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.

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FSA wants 'common sense' on mortgage overhaul

We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.

We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated.

– Martin Wheatley, managing director of the FSA

Homeowners 'struggling' to repay mortgages

  • 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.

Mortgage overhaul to slash loans to over-50s

Lenders would demand mortgages are paid off by the time people were 70 or 75, reports the Daily Mail.

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People in their 50s could struggle to get a mortgage under the new rules Credit: Danny Lawson/PA Archive

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 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.

New rules 'to affect first-time buyers'

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.

Mortgage
First time buyers are likely to be affected by the changes Credit: Danny Lawson/PA Wire

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.

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