It has been confirmed by the UK?s financial regulator, the Financial Services Authority, that tougher mortgage rules designed to stop a repeat of the irresponsible mortgage lending seen prior to the financial crisis will come into force later than anticipated. The new rules from the FSA will force lenders to pay more attention to applicants? ability to make repayments before agreeing a mortgage advance.
During the last housing boom in the UK, many lenders engaged in what was later described as irresponsible lending, allowing applicants to borrow large amount of money to buy a home without putting their ability to repay under enough scrutiny. This is something that the FSA wants to avoid a repeat of and hopes that the new regulations will help to avoid.
The new regulations were expected to come into force next summer. However, the FSA has now said that it is going to be around April 2014 before they come into force. Once the new rules come into force, banks will have to take more responsibility when it comes to ensuring people can afford to make repayments before any mortgage loan is forwarded to them, which should mean that borrowers are not granted mortgages that they cannot afford.
It is expected the introduction of the new rules will not have much of an effect on the mortgage market as most of the new rules are already in operation with most lenders already working in-line with the new rules and measures which were proposed initially under consultation within the industry, rather than waiting for mandatory rules to come in to force.
The over ambitions lending seen prior to the financial crisis is said to be partly to blame for some homes being repossessed over the past few years. This has been limited to some degree though by the rock bottom Bank of England rate of interest, which has helped to ease the financial strain for homeowners who might otherwise have been unable to afford their mortgage repayments. Mortgages such as self certified mortgages, high income multiples and mortgages with no deposit have all been blamed for leaving homeowners in financial dire straits.
The FSA said that lenders have already learned valuable lessons from what has happened over the past few years but that certain principles needed to be ?hard wired? into the system to ensure that borrowers are sheltered from taking on unmanageable mortgage loans in the future. The new process will mean that applicants looking for a mortgage will face more stringent questioning and application processes with the main focus being on proving they are able to afford the loan repayments.
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Source: http://www.loans4.co.uk/blog/?p=1691
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