FSA launches major mortgage reforms
Tue, 20 Oct 2009
In response to recent reports from many private firms and bodies, the financial Services Authority have set out new regulations in a bid to help reform the mortgage market and to ensure market stability by promoting sensible lending.
Recent research has revealed that despite the current climate, some borrowers are offering over 5 time income multiples, allowing people to take borrowings they have little chance of maintaining repayment for.
The new regulations plan to make ‘toxic’ loans a thing of the past, whilst self certification mortgages will be scrapped altogether. The regulations will also prohibit lenders from profiting from borrowers in arrears and will force lenders to take detailed stock of a borrowers spending and other commitments to ensure they can meet repayments.
Managing director of supervision for the FSA, Jon Pain, said: "The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced will ensure that the mortgage market works better for consumers and that it is sustainable for firms."
Amongst the various outgoing to be checked by a lenders before granting a loan will tobacco and alcohol spending, as well as clothing, entertainment and other common day to day expenses.
The FSA reportedly commented: "There is clearly a responsibility on all lenders to extend credit only where a consumer can afford it an, in our view, a robust assessment of both income and expenditure is key to ensuring affordable mortgages . We propose to require all lenders to assess the level of a consumer's expenditure in determining the affordability of a mortgage product, to ensure that lending decisions are based on a consumer's free disposable income."