Author: By Richard Northedge
The regulator is planning a clamp-down on mortgages, blaming the global financial crisis on lax home-loan lending.
Jon Pain, the FSA’s managing director of retail business, is also considering capping the size of mortgage that can be lent. That would mean limits on the multiple of the buyer’s income or the proportion of the value of the property that could be borrowed. The regulator does not want to see a repeat of loans that are five times the purchaser’s salary or 125 per cent of the house value.
The mortgage market review was started before the 2007 credit crunch that caused the collapse of several lenders, including Northern Rock, Bradford & Bingley and the Dumfermline Building Society. There will also be a crackdown on loans to sub-prime borrowers and mortgages given without clear proof of income.
The FSA blames greedy borrowers, including those who lied on self-certificated income claims, as well as lax lenders. It wants to see clearer disclosure of details of loans, and a full explanation of the costs and risks involved.
A ban on some types of mortgage has been considered because they are regarded as too complex, even though that would restrict competition. However, the regulator is expected to demand special selling requirements on complex loans and to order lenders to back them with extra capital reserves.
Mortgage intermediaries may be brought into the regulator’s ‘approved persons regime’ too. The FSA believes the public does not use these firms to obtain advice, but to access loans.
Buy-to-let loans were excluded when other mortgages came under FSA regulation in 2004 because they were deemed investments rather than owner-occupied homes. The FSA can only recommend extending its regime to include them. Government will have to order the change.
The regulator also wants secondary loans secured against property to come under its remit. It argues that loans given in addition to conventional mortgages add to the borrower’s overall debt and can circumvent rules on prudent lending.
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