It seems that 2012 is going to bring more concerns over mortgage lending and the Financial Services Authority (FSA) believes the”real danger” is that bigger problems are being stored away for the future.
Attempts to rescue the mortgage market have so far been unsuccessful and the worry is that ‘fire-fighting’ measures will not provide long-term stability.
As a result of the difficult economic conditions, lending criteria is set to become tougher. The FSA’s Mortgage Market Review states that loans should only be granted where there is reasonable expectation that the customer can repay the loan without relying on”uncertain” future house price rises. Furthermore, income will have to be verified in every application and lenders are being told to place greater emphasis on other regular outgoings. Potential borrowers will be scrutinised and their financial situation will be studied in even more depth. Changes also include the abandoning of “fast-tracked” mortgages (an accelerated approval process) and the removal of self-certification mortgages often used by self-employed borrowers.
In addition to these stricter rules, new stipulations mean that borrowers hoping to obtain mortgage lending which stretches past retirement age will be subject to extra “prudent and proportionate” checks. The FSA’s proposals intend to block any return to the risky mortgage lending of previous years and they come following whole sector analysis in which they found that: almost 1 in 10 mortgage holders struggles to pay their monthly bill; up to 9.2% of all home loans have payments overdue; in the next 10 years, 1.5 million interest-only mortgages worth around £120 billion will be due for repayment but 78% of all interest-only mortgages had no reported plan for repayment. These statistics are troubling and spell further difficulties for the mortgage and property markets.
Stricter controls on lending and more defaults on mortgage payments will mean that less people are able to buy and confidence in the market will be even lower. In a falling market already characterised by uncertainty, having even less buyers will lead to longer periods of time spent on the market, decreasing asking prices and a much higher risk of a sale falling through.
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