New mortgage rules to be introduced
New rules to prevent risky mortgage lending are due to be introduced in 2013 by the Financial Services Authority (FSA).
These rules will aim to bring in "common sense" standards to stop homebuyers borrowing more money than they can afford to pay back.
This is to try to stop a return to the type of mortgage lending seen before 2008, when some lenders were handing out mortgages without properly checking if the borrower was able to repay the loan. This resulted in people struggling to repay their mortgages and being in danger of losing their homes.
Under the new rules, when lenders assess a mortgage application they will have to be more detailed in their checks. For example, they will need to assume interest rates may rise from their current levels, pushing up the loan repayments, and borrowers won't be accepted on the basis that house prices may rise allowing them to eventually pay off the loan.
Existing borrowers on mortgages that could be banned by the new proposals, such as an interest-only, self-certified, or a loan with a very small deposit, will not be affected and won't be stopped from remortgaging to a more suitable loan if needed.
These proposals will now go to a further round of consultation and a formal decision will be published in the summer of 2012.
Lord Turner, chairman of the FSA, says: "We believe these are common sense proposals, which serve the interests of both lenders and borrowers. While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future, when memories of the crisis recede and the dangers of poor practice return."
Paul Broadhead, head of mortgage policy at the Building Societies Association, says: "The devil is always in the detail but these proposals seem to represent a welcome shift in policy by the FSA.
"The new regulations appear to have struck a reasonable balance between allowing lenders flexibility when assessing affordability, whilst maintaining a sensible level of consumer protection."
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.