Mortgage lenders call for restrictions on lending to be watered down.

Graham_Devon

Mortgage lenders have called on the UK financial regulator to water down its plans to restrict mortgage lending.

The Council of Mortgage Lenders (CML) says the plans of the Financial Services Authority (FSA) are "flawed and impractical".
But the FSA said it was simply trying to drive out irresponsible lending.

It said borrowers needed to be protected from taking home loans they could not afford, which exposed them to being repossessed.

http://www.bbc.co.uk/news/business-11696126

FSA accuses the lenders of "major faults" and "risky lending" leading to unaffordable borrowing, especially in the run up to 2007.

They state that lenders should have to:

• verify the income of all borrowers
• assess an applicant's income and expenditure
• assess their ability to repay on a full capital-and-interest basis
• assume loans are for no longer than 25 years
• restrict the size of loans to people with past payment problems, and
• assume that interest rates might rise from their initial level

The CML recently complained that these measures would have slashed past mortgage lending to many sound borrowers, and would lead to falling house prices if implemented in the future.

But the FSA said that many borrowers were only being kept afloat by ultra-low interest rates.

It pointed out that 350,000 borrowers are currently in arrears and 54,000 homes were repossessed last year.

Seems basic common sense to implement those points above. I'm not sure how you can sensibly argue against them and ask them to be watered down, especially considering all the financial bailouts recently. Seems the argument is "but house prices might fall, so don't implement responsible lending".

And another interesting stat:

"Almost half of UK households (46%) have had little or no money left after their mortgage and other bills were deducted from their income," the FSA said.

"Even a modest rise in interest rates could lead to a significant increase in the number of families suffering financial distress.

mcc100

• verify the income of all borrowers
• assess an applicant's income and expenditure
• assess their ability to repay on a full capital-and-interest basis
• assume loans are for no longer than 25 years
• restrict the size of loans to people with past payment problems, and
• assume that interest rates might rise from their initial level.

Basically to implement measures that were in place 20 odd years ago when I took out my first mortgage.

If only they had stayed in place in the years leading up to 2007 then the housing market would not be in such a precarious state as it is now.

CLAPTON

it makes sense for new borrowers but well be a problem for existing mortgagees wanting to move

LilacPixie

mcc100 wrote: »

• verify the income of all borrowers
• assess an applicant's income and expenditure
• assess their ability to repay on a full capital-and-interest basis
• assume loans are for no longer than 25 years
• restrict the size of loans to people with past payment problems, and
• assume that interest rates might rise from their initial level.

Basically to implement measures that were in place 20 odd years ago when I took out my first mortgage.

If only they had stayed in place in the years leading up to 2007 then the housing market would not be in such a precarious state as it is now.

Don't they already do that??? Not being sarcastic but I thought that is why they needed so much 'stuff'

Graham_Devon

LilacPixie wrote: »

Don't they already do that??? Not being sarcastic but I thought that is why they needed so much 'stuff'

Some did, to varying degrees.

Veryfying income, would mean self cert gone (unless it was verified I guess).

Asessing the income and expenditure happened to a certain degree, but these are more detailed. Sure I have seen stuff about taking into consideration childcare fees.

They only assesed ability (if they checked) on the type of mortgage being taken. This states they'd have to assess on repayment aswell as interest only. Would stop people taking interest only as a way to get cheaper payments. Seems to suggest thay could still have interest only, but only if they could actually afford repayment?

Mortgages have risen to 30-40 years. This states a reduction to 25 years only.

I'd hope payment problems have been looked into, but seems if it's an issue, in some cases, they may not have been.

The interest rate level suggests lenders should take rises into account for affordability, instead of merely advising that it could happen and looking no further into how it may affect that borrower.

markharding557

Another example of why the lenders can not be trusted to regulate them selves because they are driven by short term greed

LilacPixie

Graham_Devon wrote: »

Some did, to varying degrees.

Veryfying income, would mean self cert gone (unless it was verified I guess).

Asessing the income and expenditure happened to a certain degree, but these are more detailed. Sure I have seen stuff about taking into consideration childcare fees.

They only assesed ability (if they checked) on the type of mortgage being taken. This states they'd have to assess on repayment aswell as interest only. Would stop people taking interest only as a way to get cheaper payments. Seems to suggest thay could still have interest only, but only if they could actually afford repayment?

Mortgages have risen to 30-40 years. This states a reduction to 25 years only.

I'd hope payment problems have been looked into, but seems if it's an issue, in some cases, they may not have been.

The interest rate level suggests lenders should take rises into account for affordability, instead of merely advising that it could happen and looking no further into how it may affect that borrower.

Thanks.

We just applied to halifax. they asked for payslips, bank statements (despite banking with bank of scotland so could check) evidence from child benefit that we had 2 children which totally puzzled me but they asked they got then they came back to ask about child care cost and were told we had none unless you included £2 a week for nursery toy/book/fruit fund then they asked what the direct debit monthly to ING direct was told our savings so then i had to give a statement showing that which i did then they it was all sorted.

Product applied for was a 25 year repayment mortgage anyway and no payment problems. I just never considered that it might not be normal.

Graham_Devon

LilacPixie wrote: »

Thanks.

We just applied to halifax. they asked for payslips, bank statements (despite banking with bank of scotland so could check) evidence from child benefit that we had 2 children which totally puzzled me but they asked they got then they came back to ask about child care cost and were told we had none unless you included £2 a week for nursery toy/book/fruit fund then they asked what the direct debit monthly to ING direct was told our savings so then i had to give a statement showing that which i did then they it was all sorted.

Product applied for was a 25 year repayment mortgage anyway and no payment problems. I just never considered that it might not be normal.

Oh it's definately normal at the moment. Even the FSA state at the end of the article, that it would just be a continuation of what lenders are currently doing.

But the FSA countered that its plans merely amounted to telling the industry it should apply "sensible underwriting" when granting loans, of the sort that many lenders were currently applying anyway during the current bout of mortgage rationing.

They are merely protecting themselves at the moment. So are quite happy to do it.

This is what a poster has been so vocal about recently, in regards to mortgage rationing, and how it's keeping people out of the market. In other words, it's keeping people who can't afford mortgages with proper criteria applied out of the market.

Soubrette

I have a friend who has a x7 salary interest only mortgage.

She has just been accepted for a £9k 0% card with virgin (not new debt, she'll be shifting old debt onto it. She has sundry other cards with less on and a consolidation loan and has just taken an interest free loan with B&Q for £5000.

Although I have little sympathy with her continuing to overextend herself like this, I will have no sympathy for her mortgage company, Virgin or B&Q for lending her yet more money if the worst happens and she goes bankrupt.

julieq

I'm not really sure how many times we need to repeat this, but let's try again.

The default rate on UK mortgages is low, and was low even when rates were far higher. The financial crisis wasn't caused by lending in this country. Mortgage lending was and is a relatively safe bet for a bank, and what stopped lending wasn't high default rates, personal bankruptcies, or borrowers being overextended, it was an unknown level of liability to bad debt in the US which required balance sheets to be rebuilt.

It's really up to the banks to assess and price risk. Perhaps it's worth pointing out that even the worst of them is turning a profit on their UK mortgage books, and the proposals have more to do with a clattering shut of someone else's stable door for political reasons than having any basis in reality.

The consequence of reduced mortgage lending is lower levels of home ownership among the less well off and reduced savings rates - because the latter are paid for largely by mortgage lending, and the practical results of affordability checks is that they will favour the better off, all things being equal. So beware of the law of unintended consequences.

Graham_Devon

julieq wrote: »

I'm not really sure how many times we need to repeat this, but let's try again.

The default rate on UK mortgages is low, and was low even when rates were far higher. The financial crisis wasn't caused by lending in this country. Mortgage lending was and is a relatively safe bet for a bank, and what stopped lending wasn't high default rates, personal bankruptcies, or borrowers being overextended, it was an unknown level of liability to bad debt in the US which required balance sheets to be rebuilt.

It's really up to the banks to assess and price risk. Perhaps it's worth pointing out that even the worst of them is turning a profit on their UK mortgage books, and the proposals have more to do with a clattering shut of someone else's stable door for political reasons than having any basis in reality.

The consequence of reduced mortgage lending is lower levels of home ownership among the less well off and reduced savings rates - because the latter are paid for largely by mortgage lending, and the practical results of affordability checks is that they will favour the better off, all things being equal. So beware of the law of unintended consequences.

What about this then?

Is this all to do with the US too?

"Almost half of UK households (46%) have had little or no money left after their mortgage and other bills were deducted from their income," the FSA said.

"Even a modest rise in interest rates could lead to a significant increase in the number of families suffering financial distress.

I think it's fair to say the above could be quite a serious issue, and nothing to do with the US.

On a personal level, I don't expect all these proposals to go through in full.

BUT, at least it's now being talked about, and people are being made to look into it.

As above, we do have our own problems, and we can't keep looking to blame the US for them. 46% of UK households having little or no money left after mortgage and bill payments, with average mortgage rates as low as they are, needs looking into, and hopefully, we can prevent this in the future.