The UK government is to ban the practice of self-certified mortgages and ensure that homebuyers who are applying for mortgages will be subject to rigorous a credit check.
The Financial Services Authority (FSA) is campaigning to rid the market of the kind of negligent lending that puts both banks and consumers at risk. The FSA has the power to impose punitive measures upon banks which are seen to flout their regulations regarding inappropriate or unethical lending. They intend to make lenders liable for loans that cannot be repaid; a practice which they hope will compel lenders to carefully examine a client’s finances before entering into a mortgage agreement.
The very idea that a lender would need legislation in place to prevent them from putting themselves at risk is somewhat unexpected. However, in the cold light of recession it becomes quite obvious that some mortgages issued during the British housing boom would quite simply not be a viable option now. The FSA’s ban on self-certified mortgages, which accounted for almost half of the market during boom time, also seems like a sensible measure. Having borrowers prove their income may be felt by some as preclusive to certain self-employed people but it would simply necessitate the provision of some kind of financial documentation. Banks would just want to see, as with any client in search of credit, that the borrower has the means to repay their debt.
The Council of Mortgage Lenders were in agreement with the FSA’s proposal but also maintained that simple regulation would not be enough to solve the nation’s current debt problem. They put forward an argument for greater personal responsibility from each link in the debt chain, from lender through to consumer.
French banks have long means tested their clients for all mortgage borrowing. This has resulted in a far more temperate climate for the French housing market, as opposed to the tempestuous boom and bust we have become accustomed to across the channel.
The Financial Services Authority’s Top 5 Reforms:
- Affordability tests for all mortgages.
- Self-certified mortgages to be banned.
- The ban of arrears charges, ensuring firms don’t profit from bad debt.
- Mortgage advisers to be held accountable by the FSA.
- FSA to officiate any lending secured against a home.