Tougher New Mortgage Rules.

by Mark Johnston

Tougher New Mortgage Rules.

It appears that soon getting a mortgage to buy a property in the UK will never be as easy as it was in years gone by.

New rules which have recent being announced are the final out come of the regulator’s Mortgage Market Review (MMR), a process which has been going on for a couple of years now.

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.

The new rules have been watered down from the very first recommendations that resulted in a strident response from the industry.

From April 2014 it will mean that:

  • Mortgage applicants must satisfy lenders that they can repay a mortgage, and lenders must check these assurances
  • Interest-only mortgage customers must prove they are relying on more than just rising house prices to repay a home loan
  • So called “mortgage prisoners” on old deals will be given some leeway to re-mortgage, even if they would normally fall foul of the new rules
  • No age limit will be set on when a borrower can take out a mortgage
  • Those with an annual income of more than £300,000 or with more than £3m in assets will face a less stringent affordability check

Lenders will therefore have to put a borrower’s ability to repay under greater scrutiny as a result of these rules from the Financial Services Authority (FSA).

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.

Some experts still believe that the new rules on mortgage lending’s could prove problematic for those trying to get on the property ladder.

Also lenders will be unable to agree a mortgage unless a home owner can repay it before they are 70 or 75 and this could cause difficulties for those aged 50 plus as most mortgage terms are 25 years.

Martin Wheatley, managing director of the Financial Service Authority (FSA) said: “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”.

Paul Smee, the  Council of Mortgage Lenders (CML) director general, said: “The regulatory changes have already been widely anticipated and so are unlikely to create any significant additional or unexpected impacts.”

It seems on a whole that many industry experts believe that these new rules will help create a more sustainable market that works well for everyone, whether they are a borrower or a lender.

Borrowers need feel confident that poor practices of the past, which led to hardship and anxiety, will not be repeated. However will these new rules mean that mortgages are likely to take longer to obtain and costs may rise?

 



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