It should be more difficult to get a mortgage
The regulator is right to call for tough new rules on mortgage lending, argues Felicity Hannah.
Is life about to get even harder for first-time buyers?
The Financial Services Authority has outlined tough new rules on mortgage lending, which will see a crackdown on interest-only mortgages, while income will be more carefully assessed before a mortgage is agreed.
What's more, lenders will be prevented from approving mortgages unless homeowners can repay it before they turn 70.
On the surface, these look like yet more obstacles for first-time buyers, particularly those who can’t afford their first home until later in life.
But I think that tighter rules will benefit everyone.
Tighter restrictions on mortgage lending will help stop house prices rising so rapidly.
We’re already told that young people aren’t saving for retirement because they are frantically saving for their first homes – it will be crazy if they haven’t finished paying off that mortgage debt before they retire onto an insufficient pension.
Tighter restrictions on mortgage lending will help stop house prices rising so rapidly in the future. That means that tomorrow’s first-time buyers will benefit from more realistically-priced homes.
And interest-only mortgages have been abused. Instead of saving separately to repay a loan, homeowners have relied on rocketing house prices to provide them with equity. Recent events show how unreliable that can be.
The mortgage market desperately needs more regulation to protect borrowers from overstretching themselves.
In the first three months of this year there were 9,600 repossessions, according to the Council of Mortgage Lenders. That’s despite real restraint from banks as they try to help struggling owners. The mortgage market desperately needs more regulation to protect borrowers from overstretching themselves.
Possibly my opinions sound at odds with previous Social Voices blogs I have written. I’ve previously complained that we’ve made life far too hard for the next generation of aspiring property owners.
However, I don’t think that these views conflict. I am in favour of tightening up the rules on mortgage lending but then lending more freely to those who meet the rules.
I believe a mortgage crackdown will benefit everyone.
In the past, our mortgage market was clearly too lax. Interest-only mortgages were sold when individuals hadn’t a hope in hell of repaying them, new buyers were given 120% mortgages and the self-employed were left to judge for themselves how much they could safely be leant.
All this contributed to over-inflated houses prices and a generation of struggling homeowners. Now we’ve veered too far the other way; it’s almost impossible for new buyers to qualify for acceptable mortgage rates, causing many to give up the dream of home ownership.
The new mortgage rules we’re expecting tomorrow will tighten the lending criteria and hopefully make the market a safer place for existing and aspiring homeowners. They will ensure no one can remain in unaffordable debt into their retirement and they will prevent a return to future mis-lending. Perhaps this will encourage the banks to lend more freely to those who can afford to take on a mortgage.
So I believe a mortgage crackdown will benefit everyone – even those first-time buyers who probably see it as the final nail in the coffin of their homeowning plans.
- Felicity Hannah is a personal finance journalist living in the north of England.
WHAT DO YOU THINK? WILL THESE NEW RULES HELP HOMEOWNERS OR MAKE IT HARDER TO QUALIFY FOR A MORTGAGE?
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