FSA mortgage reform: Response
The Financial Services Authority (FSA) outlined strict new plans for mortgage lending.
Under the proposals, mortgage lenders will be ultimately responsible for verifying affordability - as opposed to brokers or intermediaries.
Other changes see self-certification mortgages being banned completely, along with high low-to-income loans for those with credit difficulties.
There will also be cut backs on fees and changes for those facing arrears.
The biggest change would be FSA-directed limits on loan sizes and affordability.
Jon Pain, FSA managing director of supervision, said: "The FSA needs to ensure that firms only lend to people who can afford to pay the money back.
"The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."
A key overall aim of the review is that "costs and risks of lending and borrowing are kept within the market and are not borne by wider society."
The report finds high loan-to-value (LTV) and loan-to-income (LTI) are not in themselves problematic - but the era of cheap credit led to lending to riskier groups.
Interested parties have been quick to respond on all areas of the FSA's 118-page Mortgage Market Review:
Citizens Advice
Sue Edwards, head of consumer policy at Citizens Advice, said: "In 2008/09 bureaux dealt with over 95,000 enquiries about mortgage and secured loans arrears - up 49 per cent on the previous year.
"Stricter tests to ascertain consumers' ability to afford a mortgage, banning the sale of mortgage products that put consumers at risk and, in particular, a ban on arrears charges when borrowers are already repaying should ensure enhanced protection for borrowers which is long overdue."
She also called for all secured lending to be covered by the FSA, as well as consumer credit protection, which is now regulated by the Office for Fair Trading (OFT).
Which?
Peter Vicary-Smith, Which? chief executive, said: "We would like to see tougher measures such as a ban on mortgages over 100 per cent and the naming of lenders that mistreat their customers.
"Mortgage providers are already responsible for assessing affordability, so why is the FSA only getting tough on it now?
"Many borrowers are suffering the consequences of irresponsible lending."
Liberal Democrats
Liberal Democrat Treasury spokesman Vince Cable hit out at mortgage lenders for not heeding lessons and continuing with risky lending at the moment.
"Some borrowers and lenders have already decided that the housing market has bottomed out and are now piling back in," he said.
"With unemployment rising and massive uncertainty in the economy this is a very dangerous game to play which is why there needs to be clear guidance on the affordability of mortgages."
He added: ""Better regulation of the mortgage market is welcome and it is right that self certification should be restricted, though abuse of self-certification is fraud and should always have been treated as such.
"With such a complex mortgage market already in existence highly prescriptive rules for mortgage affordability are not appropriate."
He called for "simple and safe" 'stakeholder' style mortgages to be introduced.
Building Societies
Paul Broadhead, head of mortgage policy at the Building Societies Association, explained he had "significant reservations about the possible unintended consequences of some of the ideas expressed".
Responding to proposed caps on LTV LTI levels, he said: "Home ownership is something that should be encouraged, and it is vital that lenders retain the flexibility to respond to the very individual financial circumstances of individual borrowers.
He added: "We have always regarded self certification mortgages as a niche product for a very small group of borrowers, and don't believe that such mortgages should have reached a market share of anywhere near 45 per cent.
"However, such products are suitable for a minority of people, and an outright ban is not appropriate."
Mortgage brokers
Andrew Montlake at mortgage brokers Coreco, claimed there was a need to "drive out the darker elements" in the mortgage industry.
"Putting the onus back onto lenders and making sure they check affordability seems a sensible move, though in reality the majority of lenders have already addressed this."
He added: "The proposed ban on self-cert mortgages needs to be clearly thought through.
"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."
He also warned in the short-term, the proposals could well affect the recent recovery in the housing market, but "sensible changes introduced now could mean that future growth is more sustainable and built on more solid ground".
Estate Agents
Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA), said much of the extreme lending being done before the credit crunch, was "clearly not sensible".
"However, with the market picking up alongside a shortage of lending we need to be careful not to deter consumers nor give banks an excuse not to lend money," he said
"We are unsure on how these new procedures will roll out, yet in light of the demise of the stamp duty holiday and the inevitable rise in VAT we must take a sensible interpretation of these guidelines and find the right balance.
"If these guidelines take us to the opposite end of the spectrum they could do untold damage to the housing market, which is currently showing promising signs of recovery."
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