A big week for housing news and indeed the future of the mortgage market.
Firstly this week we look at new FSA proposals to clamp down on the worst excesses of the mortgage industry, then an Interest Only ‘timebomb’ which will affect many older homeowners. Finally, we look at the latest house price figures from the Land Registry, did we see a rise of fall in September?
FSA to impose tight new rules on Interest Only and Self Certification mortgages
Following an in-depth review of the mortgage market, the FSA has confirmed it will impose new rules on the mortgage industry from 2014.
The main aim is to stop a resurgence of the type of risky lending seen in the years leading up to the credit crunch and to avoid borrowers taking on debt that they cannot afford to repay.
The FSA focused on two key areas, namely self-certification mortgages, which allowed borrowers to get a mortgage without proving income, and were open to significant abuse, and also interest-only loans, where borrowers had no way of repaying the capital at the end of the term.
The main proposals, which will come into force in April 2014, include:
- A requirement that mortgage lenders must be satisfied a borrower can repay a mortgage. Lenders must check these assurances
- Borrowers taking out an interest-only mortgage must be able to prove to their lender that they have a repayment strategy or plan in place, and are not just relying on the house rising in value. The lender must check at least once during the term of the mortgage that the plan is still in place
- Lenders must be satisfied that a borrower could cope with rises in interest rates and consequently an increase to their monthly payments
- There will be no age limit on when a mortgage can be taken out, even into retirement, providing a borrower has the means to repay the debt
- To avoid people becoming ‘mortgage prisoners’ borrowers will still be able to move lender, without being affected by the new rules, providing they don’t borrow more money. This rule will come into effect immediately
The FSA shied away from imposing a cap on the maximum loan to value that could be offered, clearly concerned that such a move would cause further problems for first time buyers.
Martin Wheatley, FSA Managing Director, said: “We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.”
He continued: “At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want.”
However, many mortgage experts have said that the new rules, especially those concerning self-certification and interest-only mortgages would have little practical impact as all lenders have already withdrawn from offering mortgages without proof of income and only a handful will still allow interest- only mortgages.
The response from the mortgage industry has been positive, perhaps because the FSA has watered down the proposals following a period of consultation.
Paul Broadhead of the Building Societies Association, said: “No one can argue with the objective that lenders lend what consumers can afford to repay. It is common sense that a mortgage should be repayable from income, rather than rely on increasing property prices.”
Interest only mortgage ‘timebomb’
Whilst mortgage lenders and the FSA look to restrict future interest-only mortgage lending, very little seems to be being done about existing borrowers, with interest-only deals, but who have no way of repaying the capital when their mortgage term comes to an end.
According to a report in the Telegraph newspaper this week, over one million interest-only mortgages, with no repayment plan in place, are due for repayment over the next eight years.
Some of these will be buy-to-let mortgages, which are traditionally arranged on an interest-only basis, and in other cases borrowers will have a repayment strategy in place, which the lender doesn’t know about it. However it is clear that there will still be huge numbers of residential homeowners, coming to the end of their deal without the means to repay their debt.
The Telegraph reports figures from Xit2, an “online property data network” which show that since 2002 nearly 1.3 million interest only mortgages have been advanced where no repayment vehicle was in place.
Mark Blackwell, Xit2’s Managing Director, said: “The block of interest-only mortgages issued in the mid-2000s represent a dangerous legacy from the pre-crunch boom.”
Borrowers with interest-only mortgages close to, or even in retirement, have a number of options, read our blog, “How to avoid the Interest-Only mortgage trap when you retire” for more details. Click here.
Land Registry agree that house prices fell in September
The latest Land Registry house price data, out today, shows that house prices fell by 0.3% in September, taking the average value of a home in England & Wales to £162, 561.
The figures from the Land Registry echo those from the Nationwide and Halifax, which showed house prices fell by 0.4% in September.
Despite the small fall in September, the Land Registry figures show a rise over the course of the past 12 months of 1.1%.
As always though significant regional variations are to be found within the figures.
Unsurprisingly London saw the largest increase, with prices up 5.5% over the past 12 months, despite a slight fall of 0.2% over the past month. Conversely house prices in Wales rose by 0.5% last month alone, but were still down by 1.2% over the past year.
At the same time, and confirming a generally stagnant picture in the housing market, the Land Registry reported that sales volumes were down 9% in July, the latest month for which data is available, compared to the same month in 2011.
Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options or you are affected by any of the stories in this week’s housing round up please call Linda today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org
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