Words: Ashley Rigg
Published: 9th September 2010
*Mortgage rule changes would be political suicide note
The UK’s most powerful financial regulatory body, the FSA, is recommending tightening mortgage rules that could lead to the effective abolition of interest-only mortgages.
It would not only be a disastrous move for the industry, but it would also be a political suicide note for the coalition government.
The FSA’s Mortgage Market Review recommends a further tightening of leading rules where mortgage lenders take responsibility for the performance of the repayment method. According to the
Council of Mortgage Lenders (CML), the change is likely to lead to the killing off of interest-only mortgages in the current risk-averse lending environment.
Housing Market Crash
Although we
argued yesterday that the UK housing market is unlikely to crash, this change would surely send prices over the edge. Approximately 25% of new UK mortgages are taken out on an interest only basis and many families and buy-to-let investors are relying on them to stay afloat.
The move would not only hit demand, it would result in a sharp increase in supply as thousands of families are made homeless by unaffordable mortgage payments.
Another credit induced housing crash would also almost certainly wipe out the UK buyer market for international second homes. Cash rich investors may be tempted overseas by well-structured investments but that would be scant consolation.
The FSA recommendations are obviously dreamed up by academics with very little practical experience.
Even it passes the upcoming “consultation period”, it won’t happen. Because it does, the document would be the longest (and most boring) political suicide note in history.
Source: Global edge
User Comments
Same old same old with the FSA. Pumps out some crap without even consulting the brokers whilst protecting the banks interest as always.
Ged Ward,
Complete Finance and Mortgages
Forgetting the politics for a moment, from our perspective in a market where cash is King, it would be no bad thing for 100% mortgages to disappear.
In the 'good old days' when house prices only ever went up these mortgages helped many buyers to 'get on the ladder'. However, In the light of the recent global downturn and the corresponding decline in property values there must be many who rue the day that such easy borrowing hit the market.
Peter Mitry,
Egypt Real
All the cutbacks made by Government will be nothing if the mortgage market and subsequently UK housing is made to suffer because our illustrious regulators who sat by and watched the market implode, attempt to produce the perfect mortgage. Crazy - along with the attempt to outlaw Self Certification as well.
Defunct broker,
Mortgage broker