Tighter mortgage application conditions

Millions of potential borrowers could be refused a mortgage under new reforms proposed by the industry watchdog.

The Financial Services Authority (FSA) has announced a series of reforms calling for tough restrictions to prevent irresponsible lending.

The new proposals will see potential borrowers proving their repayment credibility, providing evidence including household bills, clothing and childcare costs, before being granted a loan.

Under the new regulations, mortgages should only be granted where there is a reasonable change of repayment on behalf of the borrower. Many lenders offered mortgages on the assumption that house prices were set to increase. As house prices have continued to fall since 2007, many homeowners are currently living in negative equity and struggling to pay off a large mortgage.

As a result, the FSA has proposed the mortgage market shake-up to prevent such reckless lending from happening again. However, the UK is currently experiencing a housing crisis with millions being unable to afford a home due to tighter lending rules.

These new tough restrictions may further diminish the potential chances of securing a mortgage for many borrowers.

The FSA suggests that lenders must verify incomes and be able to demonstrate that the mortgage is genuinely affordable for the borrower. Lenders must take into account the borrower’s basic household expenditure as well as their committed expenditure.

Anything that gives consumers a basic quality of life will be valued and this includes items such as clothing, household and personal goods along with basic recreation and childcare.

CML Director General Paul Smee welcomes the proposals; “Lending needs to be responsible and done in a way which protects consumers. Rules need to be practical and avoid unintended consequences.”

“If lenders are to make their contribution to improving the supply of housing and to the wider agenda for economic growth, then they need a regulatory framework which also supports that objective.”

The new regulations will not affect existing mortgage holders.

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Posted by: WarrenWilson Categories: Buying, Buying Property, Finance Tags: , , 9 Comments

9 Responses to Tighter mortgage application conditions

  1. avatar Mark says:

    If you’re paying £1000’s in rent each month then why should the banks be difficult in lending for a mortgage?! Surely the repayments should be equivalent to the rent being paid already???

    • avatar Gary says:

      I agree. If you can demonstrate you can keep Upto date with your rent payments, then that should help in assessing your affordability. After all if I can keep paying for someone else’s mortgage whilst renting his house. I am sure I would be able to keep up with a mortgage if it was mine and at a lesser monthly payment than my current rent.

  2. avatar Matt says:

    Are these in place already? And if not, is there a proposed date for this to start?

    • avatar Nicola Severn says:

      At present, these new reforms have only been proposed by the FSA, they have not yet been agreed or finalised. As such, it isn’t yet possible to determine when they will be enforced. Sorry we couldn’t be of more help.

      • avatar Matt says:

        Thanks a lot Nicola. Your answer gave me what I needed to know so it’s great, thanks. I’m a first time buyer looking to purchase asap so this stuff is helpful to know.

  3. avatar Derek says:

    With respect, millions cannot afford a house because there are far too few houses where they are needed. There might be a million empty homes, but few are near to where people need to live. That scarcity pushes prices up making housing unaffordable for many.

    The solution is not be be found in the City or FSA, but in Westminser and planning offices.

  4. avatar Chris brine says:

    Too late as many borrowers with existing mortgages with Bankrupt Lenders cannot remortgage as many a time Advisers falsifed incomes,granted what were called “Liars Mortgages”,lenders never checked applications,even when granting Joint Mortgages when one applicant Self Employed and other Employed.
    FSA has done nothing to clamp down on Rogue Advisors and is still seemily lazy upon!!

  5. avatar Angus Gunn says:

    What never ceases to amaze me is the earnest way the financial community commits to bolting stable doors. Still, there is always the gullible public purse to bail out the banks and other similar institutions who have speculated customers funds.
    Perhaps they should be audited to ensure they can afford their directors’ excessive bonuses whilst addressing appropriate pay structuring for less senior staff.

  6. Are these the same people who can not regulate the market they are supposed to be doing,is this the same fsa who have a ccj registerd against them in 2006 for not paying a small printing company,is this the same fsa who’s director was the director at mccb and walked away with £2,500.00 in fee’s and still has not paid the small advisors there money back,than all i can say is god help the financial market,where is cameron’s promise to rid the industry of morons gone……