Winter Weather in the UK Mortgage Market

by Mark Johnston

We’ve seen record freezing temperatures and snow fall that has brought much of the UK to its knees. Winters is almost certainly here, but some many would say the dark doom and gloom has been hanging around the UK housing market for some time. There has been numerous reports of falling house prices and market crashes. As a result the mortgage market hasn’t been that much better of late.

Everyone in the industry is looking at someone to blame. The bankers, taking risks with our money, the general public borrowing more than they can afford or the regulator for tightening up lending rules.

Although there seems to be no one person to blame, the Financial Services Authority seems to be the current whipping boy.

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 Council of Mortgage Lenders says: “We question whether all consumers want or need the level of advice the FSA wants to put in place.”

They are concerned that the new plans will shift the responsibility of whether a borrower can afford a mortgage form them to the lender. But we cant forgot the lessons of the recent financial meltdown, it almost seems like banks and building societies under the guise of their trade body are suggesting a return to their old ways where bad risk management and lending decisions that saw them offering mortgages to those who couldn’t afford to pay them back. This irresponsible lending is what caused the run on Northern rock and what triggered other banks to have to go to the UK tax payer for bailouts.

Although the industry are suggesting that the FSA’s plans for mortgage reform will kill off the industry and make it difficult for first time buyers to get a mortgage its worth looking beyond the hype. The main change that the FSA want to implement is to force lenders to make sure that borrowers can afford to repay a loan. Its seems pretty obvious and surprising that it’s not something that as an industry they don’t already do.

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