Buy to Let

Tougher rules on mortgage lending to be introduced in 2014

Your Mortgage
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Your Mortgage

The Financial Services Authority (FSA) has confirmed that it will introduce rules designed to prevent irresponsible mortgage lending in its Mortgage Market Review.



However, it has put back the date for implementation from summer 2013 to April 2014.Under the tighter regulations lenders will have to carry out a more in-depth assessment of a borrower’s ability to repay a mortgage before it is approved. The new rules are designed to prevent lenders returning to the risky lending practices employed before the financial crash in 2008, when very limited checks were made on borrowers’ finances.

 Since the credit crunch many lenders have already introduced stricter mortgage lending criteria.

The new rules include: –

  • Mortgage applicants must satisfy lenders that they can repay a mortgage, and lenders must check these assurances
  • People applying to take out an interest-only mortgage will have to prove that they have a plan in place to repay the capital at the end of the mortgage term, rather than just relying on rising house prices, for example
  • So-called “mortgage prisoners” on old deals will be given some leeway to remortgage, even if they would normally fall foul of the new rules, but lenders are under no obligation
  • No age limit will be set for mortgage applicants
  • Those with an annual income of more than £300,000 or with more than £3m in assets will face a less stringent affordability check

The FSA added that, with immediate effect, lenders must not take advantage of a borrower, unable to get a mortgage elsewhere, by treating them less favourably than other similar customers. So these applicants must not be offered a worse interest rate or terms.

Martin Wheatley, managing director of the FSA, said:

“These new rules will help create a more sustainable market that works well for everyone, whether a borrower or a lender.

“We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.

“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated. At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want.”