The mortgage market has seen plenty of changes over the last couple of years as lenders make it ever increasingly difficult and expensive to secure a home loan.
Now, with the Financial Services Authority (FSA) planning even tougher regulations in early 2011, senior figures within the industry are claiming that the housing market faces ‘an abyss’ if these new proposals come into force.
The FSA plans to:
- Restrict the amount lent to borrowers
- Outlaw ‘self-certified’ mortgages
- Calculate affordability based on repayment rather than ‘interest only’ mortgages
- Ban ‘fast-track’ underwriting
This means that it will become much more difficult to secure a mortgage, particularly if you are self-employed or if your income has reduced since you took out your current loan. Analysts estimate that up to one in five borrowers will not be able to remortgage under these new rules.
‘Abyss’
Peter Williams, chairman of the Intermediary Mortgage Lenders Association, said: "This really is a step into the abyss. By 2012 the UK mortgage market could be unrecognisable. It will be a conservative market serving only the relatively well-off."
There have been calls for the FSA to focus on tackling the problems of mortgage fraud (much of it went unchecked in the boom years) rather than punishing decent homebuyers by restricting their access to the best mortgage deals.
The FSA acknowledge that the total lending would be almost 10 per cent lower under the new proposals, and that over one in six recent borrowers would have had to reduce the amount of the mortgage they applied for to pass the new, stringent guidelines.
Experts argue that these proposals will only serve to increase repossessions as borrowers are forced to accept higher mortgage rates due to their inability to remortgage to a competitive deal elsewhere. The knock-on effect could therefore be a disaster for an already fragile UK housing market.