The Financial Services Authority (FSA) has sounded the death bell for self-certification mortgages. The regulator has laid out proposals today set to change the face of the mortgage market with what it called its most ‘intrusive and interventionist’ proposals to date.
The regulator is also demanding to oversee the regulation of buy-to-let alongside all other home associated lending, such as taking out a second charge.
The FSA also calls for tougher affordability tests for all mortgages and making lenders hence responsible for assessing a borrower’s ability to pay. It also intends to ban ‘self-cert’ mortgages through greater verification of borrowers’ income.
The report has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.
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 discussion paper is out for discussion until 30 January 2010 and the FSA will be seeking views from consumer groups and industry. A feedback statement will be published in March. Implementation will be phased.
The Council of Mortgage Lenders commented that it was “ironic that at the same time as politicians are seeking to encourage lenders to increase their flow of mortgage lending to consumers, they are also keen to take steps to address the perception of “irresponsible lending”.
“While the FSA’s discussion paper is well thought out and logical, some of the wider political rhetoric around lending issues continues to seem more conducive to rabble-rousing than to properly considered debate,” it said.
I agree that the banks clearly had to be brought in to check, especially sub-prime lending, securitisation and the goings on of mortgage backed securities. But it is also important to ensure that the FSA is objective and fair to lenders, mortgage brokers, and consumers. I am concerned that we might be entering a new phase of over-regulation and policing, one extreme to the other.
The good news for the time being is that there are still a number of high street lenders providing contractor mortgages based on assessing contract annual earnings. The mortgage loan can be as much as 4.5 times your annualised contract rate. This means that a contractor earning £450/day can potentially borrow £486,000.
