MP Raises Mortgage Market Concerns

by Mark Johnston

The financial services regulator, the FSA is yet to publish the new rules on mortgage lending for banks and building societies. The results of the mortgage market review is set to clamp down on irresponsible mortgage lending but will leave thousands of would be home buyers with no opportunity to raise finance for their first home.

Experts are concerned that tightening the lending criteria even further will stifle the mortgage market and will only result in perfectly responsible borrowers being left without a way to buy a home.

MP Grant Shapps highlighted his concerns about the new rules which the Financial Services Authoirty (FSA) are due to publish. Along with many city analysts he predicts that the rules will only exacerbate an already difficult market due to the lack of credit, falling house prices and massive deposits being ask for by banks andn building socities.

Mr Shapps is due to meet with the FSA’s boss Hector Sants to try and persuade him to rethink the plans. The new rules will force lenders to carry out tough affordability checks on would be borrowers to make sure that they can not only afford the repayments to also afford any increase in repayments due to rises in interest rates. The changes are also set to see the end of interest only mortgages as the new requirements will make lenders make sure borrowers have a means of paying their loan back at the end of the term.

Earlier this month the Council of Mortgage Lenders (CML) warned that up to 60% of borrowers who had a loan agreed this year would not qualify for a mortgage under the new rules. Even the MP himself confessed that the new rules would mean that even he would be turned down for a mortgage.

Since the financial crisis, lenders have made a lot of progress to tighten up mortgage lending and move away from risky business. This has caused a lot of problems for first time buyers as they are now required to find large deposits, some as big as 40%. The lack of first time mortgages being agreed has taken its toll on the UK housing market as fewer and fewer people are looking to buy an ever growing number of houses. The situation has driven down prices with many experts predicting between a further 2.5% and 10% drop in 2011.

Mr Shapps blamed the struggling mortgage market for the drop in house prices and is worried that the new rules will worsen the problem. Mr Shapps said: “The building figures are the lowest for peacetime since 1924, but if you ask the house builders what the main problem is, they say mortgage supply, meaning a lack of people to buy their products. Planning is only second or third on their list.”

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