Author Topic: New stricter mortgage regulations will make it harder to get a home loan  (Read 3528 times)

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The Prophet

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Over the last three years the Financial Services Authority (FSA) has been conducting a review of the mortgage market.
New rules on lending have just been published aimed at preventing a repeat of the reckless lending in the past and ensuring home buyers do not borrow more than they can realistically afford to.
The comprehensive changes mean some homebuyers will no longer be able to qualify for loans.

Affordability
All mortgage providers will now have to estimate a buyer's ability to afford the loan repayments after all essentials such as heating, food, and Council Tax have been deducted.
Banks and Building Societies will need to see pay slips and evidence of regular expenditure such as credit card statements.
It is anticipated that those with larger families will be able to borrow less than someone without children on a similar income. 
In addition, lenders will now have to allow for the possibility of interest rate rises for up to five years into the future.
This would mean buyers already struggling to make payments at current rates would only be able to get a smaller mortgage.

Interest-only mortgages
These are cheaper than a repayment mortgage as only interest on the loan is paid each month.
Current rules allow interest-only mortgages on the expectation that rising house prices, or perhaps an inheritance would in the future, enable the loan to be repaid.
The FSA will now only allow interest-only loans if there is an established repayment strategy how the loan will be repaid.

What will the impact be?
The new rules will mean an end to self-certification where borrowers could get a mortgage without having to prove their income.
In general, it is anticipated that people will be allowed to borrow less in future than they currently may be able to today.
The FSA believe that 2.5% of borrowers who could get a mortgage at present, may not qualify under the new rules or may only be able to secure a smaller loan.
It is inevitable that the new mortgage measures will put further downward pressure on house prices in 2013.

The FSA say that the new rules will not come into force until June 2013 at the earliest.