The Trade body’s latest Mortgage Market Review has unveiled a wide ranging shake up for the mortgage broker and mortgage market yesterday.
The new proposals released as a deterrent to the return to irresponsible lending seen in the previous boom and to stop borrowers taking out mortgage deals which turn out to be unaffordable in the long term.
The Financial Conduct Authority (FCA) said that while current low interest rates have aided some borrowers, there are “real dangers” that problems are being stored away for the future, with home owners unable to meet repayments when rates start to go up. Its Mortgage Market Review suggested loans should only be progressed where there is reasonable expectation that the customers can repay the loan without relying on uncertain future house price rises.
The report added that income of applicants would have to be verified in every application processed as well as mortgage lenders placing greater attention to regular expenses like childcare, recreation, clothing costs and household bills with could affect affordability. The new proposals will bring about the end of “fast-tracked” mortgages, an accelerated approval process under which verification of income may not be asked for at the lender’s discretion.
Explaining the reasons for changes the report said “While risky, lower-quality lending may currently be restricted, there is a real danger that, as funding comes back into the market and lending starts to pick up again, there will be increasing pressure on firms to consider higher-risk lending and focus more on market share than maintaining lending standards.”
The Financial Conduct Authority said mortgage lenders will be able to provide new mortgages to some existing customers even where they do not meet new affordability requirements however also expressed concern about borrowers who are “trapped” into paying a high interest rate by their current lender because they are unable to take advantages of the best value mortgages available elsewhere.