Home lending affordability to be 'tested'
Home lending affordability to be tested under new rules recommended by FSA
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By Darren Estwick. |  |
Monday, 19, Oct 2009 09:06
By Sarah Garrod
Mortgage affordability will be tested by lenders under major reforms to the UK mortgage market announced today.
But the Council of Mortgage Lenders (CML) has called the reforms "ironic" given the need to encourage lending and the flow of mortgage finance to aid the beleaguered housing industry.
The Financial Services Authority (FSA) set out the proposals under their Mortgage Market Review discussion paper. It said the paper "reflects the FSA's changed approach to a more intrusive and interventionist style of regulation".
Under the proposals, the FSA suggested imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay. They also indicated a ban on 'self-cert mortgages', the sale of products which contain certain 'toxic combinations' of characteristics that put borrowers at risk and on arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears.
The watchdog also recommended that all mortgage advisors should be personally accountable to the FSA.
Jon Pain, FSA managing director of supervision, said: "The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.
"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 today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."
The paper is open to discussion until January 2010.
However, the CML, while welcoming the paper, has said "some of the wider political rhetoric around lending issues continues to seem more conducive to rabble-rousing than to properly considered debate".
"We agree with the FSA that regulation in itself cannot resolve the problems of the recent market. However, we also agree that clearly delineated responsibilities, which remove regulatory ambivalence, will help lenders, intermediaries and consumers to know where they stand, and to accept the consequences of their actions.
"As always with regulatory change, the devil may be in the detail. But we welcome the consultative approach, and look forward to working with the FSA to ensure that the objective of regulatory fairness between lenders, intermediaries and consumers is achieved in practice," Michael Coogan, CML director general, added.