FSA makes proposals for mortgage market regulation
Monday, 19 December 2011 9:44 AM
The Financial Services Authority (FSA) has today announced its plans to prevent "irresponsible lending" and avoid a repeat of the mistakes made prior to the financial crisis.
At the core of the proposals is the idea that customers should be allowed to rely on uncertain future house price rises.
The FSA also say there should not be an assumption that interest rates will remain low.
Lord Turner, chairman of the FSA, announced the Mortgage Market Review and said that he hoped the "common sense" proposals would serve the interests of both lenders and borrowers.
He said: "While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return."
Turner added that the impact of the proposals must be thought through and negative effects on consumers through arrears and repossessions must be minimised.
"The estimates are inherently uncertain, but they suggest that the new rules would have only a marginal effect in current market conditions – and particularly so for first time buyers – but would act as a significant constraint if market practice were in danger of returning to the 2005 to 2007 pattern," he continued.
The FSA is now calling on lenders and consumer groups to once again contribute by providing a detailed assessment of the potential impact of the new rules.
Earlier proposals from the FSA had sparked concern, with the Council of Mortgage Lenders (CML) warning of a potential "disproportionate and detrimental" effect on consumers as well as lenders.
However Paul Smee, CML director general, welcomed the new proposals.
He said: "Lending needs to be responsible and done in a way which protects consumers. Rules need to be practical and avoid unintended consequences.
"Whilst there is much detail to be pored over, the FSA's new proposals seem to strike broadly the right balance.
"If lenders are to make their contribution to improving the supply of housing and to the wider agenda for economic growth, then they need a regulatory framework which also supports that objective."
Key features of the proposed future regime include the need to verify income in every mortgage application and advice for those looking to consolidate debts with a mortgage.
Lenders will not need to consider what borrowers spend, but cannot ignore unavoidable bills, such as heating and council tax.
Paul Broadhead, head of mortgage policy at the Building Societies Association, said:
"No-one is looking for a regime that permits lax lending practices, however the original proposals were in danger of locking credit worthy borrowers out of the market or imprisoning those with immaculate payment records, but non-standard profiles, in their current homes and loans.
"This seems to have been avoided which is good news for the self-employed, those in existing self certified mortgages and people with negative equity. The new regulations appear to have struck a reasonable balance between allowing lenders flexibility when assessing affordability, whilst maintaining a sensible level of consumer protection."
The consultation period will end for the Mortgage Market Review on 30 March 2012.
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