by Mark Johnston
The UK’s housing minister has been putting pressure on the city regulator the Financial Service Authority (FSA) not in introduce tough new mortgage lending rules. Following the financial crisis, the FSA has been planning to change the way banks and building societies lend to their mortgage customers. An investigation was commissioned called the mortgage market review which would put plans in place to tighten up lending criteria to try and avoid another credit crisis which rocked the financial world a few years ago.
The new rules would see fewer mortgages being agreed and at a greatly reduced level. This would not only prevent millions from owning their own home but it would more than likely spark a house price crash which would have devistating effects on a struggling UK economy.
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.
The housing minister Grant Shapps is due to meet with the FSA to get an update on the progress of their review and he is set to put pressure on them not to implement tougher rules. 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.
Mr shapps wants a more stable housing market without the boom and bust that it has seen in the past. He is concerned that the new rules will not only cause a market crash but will prevent young first time buyers from entering the UK market. He is concerned that any further rules will force the market to be be “locked down by micro-management” instead of open, competitive which would provide would be home owners with choice and the ability to own their own homes.
Mr Shapps said: “Too many young people now feel getting a foot on the housing ladder is not something they can aspire to. The average age of a first-time buyer without the financial assistance of parents has risen to 37 – and I don’t want to see this increase in the future. So I will continue to direct my efforts towards creating a stable housing market, but also one where prospective homebuyers across the country do not see their aspirations curtailed by red tape.”
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