FSA Publishes Common Sense Mortgage Rules

The Mortgage Market Review (MMR) is a major piece of work that the regulator has been conducting over the last couple of years in a bid to lay down the rules for mortgage lending to follow in future.

The new rules have been received favourably as the consultation begins to move into the final phase before the rules are finally rolled out in early 2013.

A key area is in assessment of the affordability of a mortgage and how that can be done so as to avoid lending that will be a burden, now or in the future.  Borrowers can expect therefore to be asked not only questions around their income but also about their outgoings and other financial commitments, although the new rules recognise that earlier suggestions of even more detailed expenditure could prove impractical.

There will be a need for borrowers to provide evidence of their income for all mortgage applications.  This will shut the door on any return of self certification mortgages to the market.

Interest only mortgages also receive plenty of attention.  Unless borrowers can show a credible plan to repay the mortgage then the affordability test will be conducted on a repayment basis.  This is in a bid to prevent borrowers relying on ever-rising house prices as a means of repaying an interest only mortgage and will stop its use as a way to borrow more.

These rules will sound familiar to many borrowers, as the tightening in the mortgage market in recent years has already seen the adoption of many of these principles.  The aim of the Review is to put in place a framework that will stop a return to riskier lending practices when the market begins to grow in the future.  The new rules should therefore hopefully not make life for borrowers any harder than it already is!

There is also a boost for existing borrowers as the rules allow for some transition for those that borrowed before lenders toughened up and are finding it difficult under the new criteria, despite the fact that they have been coping perfectly well with the existing mortgage.  Lenders can show more flexibility to this type of customer as they have built up a good track record.

Overall the rules should not have a radical impact on the current market but will help ensure that prudent criteria and common sense prevails when the market does start to grow again.


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