New Rules For Mortgages

New rules being introduced to sure up the mortgage market have now been published by regulators.

The long-awaited announcement will lead to a clamping down on self-certified loans and on interest only mortgages, amongst other things.

Many in the industry have described the move as common sense and say it is only putting into the rules what is already being practised by most lenders.

But others have criticised the new rules saying it will hamper any recovery in the mortgage market.

The Financial Services Authoritys announcement will especially impact on the self-employed who are often self-certified.

The Council of Mortgage Lenders approved of the new rules because it said they would ensure that lending was responsible.

It is said that Implementing the Mortgage Market Review will cost the industry over 170 million a year on top of initial set-up costs of as much as nearly 70 million, the FSA said.

There will be no restriction on high loan-to-value deals because they are crucial to first-time buyers.

Interest-only deals will be allowed, but only if the borrower can ensure a credible repayment strategy that does not rely on house prices rising.

The repayment strategy will also be reviewed by the lender during the loan period.

Older people will be able to take out a mortgage regardless of their age as long as they can pay off the debt, even in retirement.

The FSA believes that its new rules will affect up to 11.3 per cent of borrowers, or as many as 1.2 million of the 11.2 million of those repaying mortgages in the UK.

Paul Broadhead, head of mortgage policy at the Building Societies Association, said: No one can argue with the objective that lenders lend what consumers can afford to repay.

It is common sense that a mortgage should be repayable from income, rather than rely on increasing property prices.

The new regime comes into effect in April 2014, but lenders will be barred from treating mortgage prisoners less favourably than other customers with immediate effect.

Martin Wheatley, FSA managing director, said: We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.

At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want.

The FSA said those most affected will be the self-employed, as many were self-certified borrowers, and the credit impaired.

It said: The impact is less on first-time buyers than on remortgagers.

by: Mikel Frederick

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