UK regulator says mortgage rules to be tightened

By JANE WARDELL

posted: 37 DAYS 22 HOURS AGO

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LONDON -British homebuyers will face stringent affordability tests and "more intrusive and interventionist" regulation under plans announced Monday to tighten lending rules in the wake of the financial crisis.

The Financial Services Authority's shift to tighten rules — including a ban on "self-certification" mortgages, in which borrowers do not have to prove their income — means some people who were able to get home loans in the boom years would no longer be able to do so.

The proposed changes are a response to critics who argued that the FSA's lax regulatory style contributed to last year's banking crisis.

Under the proposals, lenders would be ultimately responsible for assessing a consumer's ability to repay their loan, taking into account their monthly disposable income, ending so-called "liars' loans."

There would also be a ban on mortgages that contained "toxic combinations", such as lending a high proportion of a property's value to people with impaired credit histories.

But the regulator stopped short of putting forward an outright ban on mortgages with high loan-to-value ratios or ones which lent high multiples of borrowers' income, arguing that approach was too blunt.

However, it warned that it had not ruled out imposing caps if its initial proposals did not have sufficient effect on the market.

FSA chief executive Hector Sants said the new rules were a move away from the previous belief that banks "would behave properly and not put themselves at risk and not put consumers at risk."

"We just have to recognise that both firms and consumers don't always make the best decisions," Sants told BBC radio. "They don't always act in their best interests or indeed in the collective interest of society, so we need a new approach to regulation, which is what the FSA is carrying through."

The proposals, which are open for consultation until the end of January, received a warm welcome from charities and consumer groups but were greeted with caution by the banking and mortgage industry.

"While much of the detail in the paper is sensible, we have significant reservations about the possible unintended consequences of some of the ideas expressed," Paul Broadhead, head of mortgage policy at the Building Societies Association. "We need a sensible balance between appropriate regulation and allowing people to buy their own home when they can afford to do so."

Andrew Montlake, of mortgage brokers Coreco, noted that self-certification was introduced to help thousands of responsible, self-employed people with irregular income to get a loan.

"It is easy to get carried away with regulation after the horse has bolted, but when used properly through approved brokers, backed up with sensible checks, there can be a place for self-certification," Montlake said.

But housing charity Shelter, which helps homeowners who fall into arrears or whose homes are repossessed, said the changes should be implemented urgently to ensure the "dark days of reckless lending never return."

2009-10-19 10:34:06