by Mark Johnston
Many first time buyers may feel relived that they have been thrown a life line by the city regulator. The Financial Services Authority (FSA) were set to shake up the mortgage industry by imposing strict lending criteria on banks and building societies which would have resulted in it being impossible for many to get a mortgage.
Over the past few months there have been numerous reports on how the FSA was planning to change how mortgages were approved. The controversial mortgage market review had received lots of criticism as new plans would result in many first time buyer mortgages being scrapped including interest only options and many buy to let.
Following industry pressure, the FSA have decided to take longer to review the proposed plans to make sure they are fit for purpose and don’t destroy the hopes of many first time buyers by pricing them out of home ownership.
The FSA is now looking to publish their plans in the summer of 2011 which leaves a window of opportunity to lenders to launch new products before new rules come into play. It also provides first time buyers with time to find a new mortgage before the new lending criteria mean they will not be able to get finance under the strict new affordability rules.
The new rules will mean that lenders are forced to make sure that borrowers have the means to not only afford the repayments of a mortgage but also afford any price increases due to interest rate increases. The tests will take into account a borrowers monthly outgoings and salary. It will look to see if not only the monthly repayments can be met, but in the case of interest only mortgages, that the capital can be repaid too.
Under the new rules, first time buyers, those looking to buy a house using an interest only mortgage and self employed people would be the ones most affected by the changes. The industry is concerned that having such strict rules would reduce choice within the industry which would only effect the consumer. Any further pressure on borrowers could push many out of the market as they are already struggling to find reasonably priced loans especially when they don’t have large deposits or a lot of equity in their homes.
Adam Phillips, chairman of the Consumer Panel that but pressure on the FSA to relook at the review said: “We welcome the FSA’s decision to take more time in assessing the full impact of the MMR. It is essential that the regulator assess the possible unintended consequences and side-effects of its proposals for the rest of the market.”
Broker David Hollingworth at London & Country Mortgages commented by saying: “There is consensus the market needs to tighten to prevent irresponsible lending, but that has already happened to a large degree as the banks have curbed risk. Access to funds is the prime concern and should be what the Government and regulators are addressing.”
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