Self-certification loans will become a thing of the past on new mortgages. For thoses seeking new mortgages, that may prove difficult but the right news. Thats certainly the view as this week there are further efforts to make borrowing only for those who really can jump through the hoops first.
The Financial Services Authority (FSA) want to prevent a return to risky lending and so have proposed some new rules.FSA report that lenders had behaved with “irrational exuberance” – a phrase first used by the US Fed chairman Alan Greenspan during the dotcom bubble – in the run-up to the credit crunch, and had offered mortgages as loss leaders, subsidised by payment protection insurance premiums.
Ideally they want to force income checks before lending allong with encouraging banks and building societies to avoid making assumptions.
Dangers for new mortgages
The danger in the past is to assume house prices always go up.
FSA claim that its main aim is not to make it difficult to borrow, but rather protect property buyers.
The FSA proposes three core mortgage lending principles:
- Lenders should only agree mortgages or loans with a reasonable expectation that the customer can repay without relying on uncertain future house price rises. Banks and building societies must verify income for every mortgage applicant.
- Lenders should assess the borrowers ability to repay a loan on the basis interest rates might rise
- Interest-only mortgages can only be agreed if the borrower can prove a strategy for repaying the loan from other resources and that the plans do not rely on future house price rises.
This comes on the week where reports show that mortgage repayments are cheaper than rental bills but many first-time borrowers can’t get a mortgage. Its a catch situation that few can break into. Potential home owners are doomed if they do and doomed if they don’t they end up paying more than a repayment mortgage renting, yet they are renting because no one will lend to them.
Are you in a position similar to the above? We want to hear your comments on whether the banks should make it difficult for new new mortgages and first time borrowers?