Mortgage Changes

publication date: Dec 21, 2011
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Mortgage Changes


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The Financial Services Authority has just announced the latest round of suggestions to reform the mortgage market to try and make sure that the boom and bust in the housing market of 2000-2007 doesn't hit the UK economy again. 

The first round didn't go well and suggested that there were going to be no self certification mortgages (where proof of income is not required). It also suggested an end to interest only mortgages. Not allowing lenders this flexibility would have very much put major restrictions on lenders to lend, meaning less buyers would have the finance to buy now and into the future.

Instead of hefty restrictions what the FSA are now suggesting is:-

  1. Requiring lenders to be solely responsible for checking a borrower's ability to be able to afford the loan repayments.
  2. Reverting mortgage loans to the same restrictions and checks pre 2000 when sensible, sustainable lending existed.
  3. Interest only mortgages will still be available, but tighter lending will exist and borrowers will have to show evidence they could either afford to put money into a savings scheme or afford a repayment mortgage.
  4. Self certification mortgages will not be allowed, but lenders can still lend to self employed people as long as they can prove the borrower can afford the repayments, for example have a year or more of accounts.
  5. Affordability mortgage stress test should interest rates increase, say by one or more percent.


To put these changes into context, there are currently around 27 million households in the UK. Of these, less than 40% have a mortgage, equivalent to approximately 10 million households. Many of these people won't be affected as their mortgages will be 75% or more LTV, in other words a safe lend.

For more information on the FSA's mortgage proposals, visit the FSA website.

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