Changes put forward by the Financial Services Authority will introduce some of most significant
changes to the mortgage market this country has seen in recent times.
The FSA new rules for banks to follow on approving mortgages are designed to make sure customers are not able
to borrow more than they can afford. They include a ban on
self-certification mortgages, new rules for those seeking to remortgage,
stricter rules on interest-only mortgages, improved affordability checks, and a
change in the rules on how advice is given by mortgage brokers.
These changes
have come about prevent another boom in mortgage lending and in house prices.
This is what happened in the middle of the last decade and why some right wing
commentators say we are now facing one of the worst financial disasters ever
witnessed.
So how does the
affordability test, as proposed, work?
A lender will
consider how much you spend on essential household expenditure such as heating
and council tax plus basic living costs and other debt commitments. If these
changes are implemented a lender will no longer have to consider how much you
spend on discretionary spending such as on leisure activities and holidays as it
will expect a borrower to change spending habits if the borrower wishes to
succeed with the loan application.
Lenders will
also apply a “stress test” on your finances so as to assess your ability to
afford your mortgage repayments if interest rates rise in the future.
What about
interest only loans?
Borrowers will
only receive an interest-only mortgage if it can be proved there is a robust strategy
to repay the capital, such as from the sale of a second home or have an Isa
(Individual Savings Account) or from regular bonuses.
Replacing existing mortgages will also prove
difficult under these new rules though the FSA have
introduced “transitional arrangements” to help existing creditworthy borrowers
that might not be able to move home or refinance as a result. Lenders will be
allowed to waive the new affordability rules for existing borrowers if the
borrower has met repayments for at least the last 12 months and have not fallen
into arrears. Existing borrowers who need to borrow more will however be
subject to the new affordability rules.
These new rules are unlikely to change the
current attitude of borrowers and in the short term are likely to keep property
prices stagnant. Whether this will
assist first time buyers remains to be seen, though our view is that they will
only serve to make it more difficult for those looking to get onto the property
ladder and force more people into looking to the rental market. These rules could very well begin
to turn our property market into those markets commonly found on the continent
where home ownership is not a priority and indeed a goal of those looking for a
home.
The rules will
create a more stable housing market but one which will be seeing a reduced
number of transactions and one where only those who have financial stability
and a track record of proving it will be able to become home owners. Whether this is good for the country as
a whole and will lead to a more stable and balanced society will remain to be
seen.
As conveyancers,
there will be fewer transactions around and as those borrowing will face higher
lender fees and perhaps spend more money to prove their track record and credit
worthiness, there may be a temptation to make economies elsewhere, and perhaps
look to find the conveyancer advertising the lowest price.
At MJP we understand this, and this is why we offer a competitive price
for our moving service, but with the commitment to ensure we also provide a
personalised service and one in which we take pride. We are able to offer a quality service at a discounted
price because we operate a unique case management system and have quality
checks built into every stage of our process. All out clients can access the system and receive regular
updates straight to their phones.
Each client is also assigned his or her very own case handler who will
oversee the transaction throughout its course.
Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk
"David Pett and his team have been excellent - regular updates and speedy responses to queries. Something that has been problematic with other solicitors in the past"
Louise Stone - December 2011
