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| There is not much that will make it easier for first-time buyers to get a home, but many will be relieved that the regulator has decided not to impose caps on the pearl jewelry maximum loan-to-value (LTV), or on the income multiples some lenders use when deciding how much someone can borrow. In other words it is not banning 100% mortgages or 95% mortgages, or insisting that the most someone can borrow is three or four times his or her salary. However, the FSA said it biwa pearl was not ruling out imposing caps in future. Not putting limits on LTVs means we could see more 95%-100% mortgages if and when banks decide they have an appetite for this sort of business. And there are still banks that will let people borrow more than four times their income. For example, state-owned Northern Rock is akoya pearl prepared to lend someone up to 4.5 times their income if they are buying on their own, as long as they get a high credit score and earn more than £32,500. | ||
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| The Financial Services Authority wheeled out a killer statistic yesterday: 49% of mortgages granted in 2007 did not involve checks on the borrower's income. That seems to answer the question of whether banks need to be told how to run their businesses in their own best interests. Yes, they do: given half a chance, banks will turn their mortgage departments into sales operations. As it happens, new rules on capital adequacy have made it pearl jewelry uneconomic for lenders to grant some of the mad loans seen two years ago. Crazy 100% mortgages will not be returning except as a trickle. So it doesn't make much practical difference that the FSA has not formally banned 100% mortgages. Its reluctance to do so is sensible because there will always be cases where high loan-to-value ratios can be justified – it would be unfair to impose an 80% ceiling on, say, newly qualified medical graduates with secure jobs and solid prospects. So, two cheers for the FSA's report. The third cheer is reserved until we discover if biwa pearl unintended victims (like some credit-worthy self-employed people) are caught in the FSA's net. It is also sensible for the FSA to reserve the right to change its mind on loan-to-value ceilings. It's not hard to imagine circumstances in which limits could be deemed appropriate. A couple of years of strong house price inflation, if unaccompanied by growth in wages, could do the trick. At that point, the regulator would have to decide whether its commitment to lean against the wind extends to depriving the great British house price punter of credit. For now, that's a theoretical possibility. The akoya pearl more likely plotline is that mortgages in future will be dearer and harder to obtain. Get used to it. | ||
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| The Financial Services Authority today shut the door on so-called liar loans and warned that the days of homeowners remortgaging to splash out on holidays and pay off credit card debts may soon be over. Unveiling a review of the mortgage market, the City watchdog laid out new rules for the £180bn home loans industry, which had threatened to collapse as the credit crunch exposed reckless and dubious lending practices to people who could not afford the repayments. But the FSA stepped back from banning 125% mortgages or individuals taking out loans of five or more times their salary. Instead it demanded more stringent "affordability" checks on borrowers, and an end to "toxic combinations" such as loans worth more than 90% of the value of a house for people with poor credit histories. The FSA acknowledged it had failed to curb "risky lending and unaffordable borrowing" in the past and promised a "more intrusive and intensive" approach. Self-certified loans will be the first to be banned. These mortgages were aimed at self-employed and freelance workers who had trouble proving their income to pearl jewelry lenders. But the FSA found that by the time the mortgage market peaked in 2006/07, 45% of all mortgages were advanced on a "no income verified" (NIV) basis. "No other country that we assessed for comparative purposes featured a similarly significant NIV market segment, with the exception of the US and Ireland, both of which experienced a boom in mortgage credit and house prices, followed by a severe reduction in both," it said. The FSA found there was widespread evidence of fraud and a big jump in arrears among self-certified loans. Lenders will in future be required to directly verify the income of applicants and not rely on information from mortgage brokers. Critics accused the regulator of banning products and practices that had long disappeared. "Self-cert is effectively a closed market at the moment anyway," said David Hollingworth of the broker London & Country, whose industry has seen the number of mortgage products slashed in the past two years. Much of the 118-page report focused on new capital requirements that would make it unprofitable for banks to offer high-risk mortgages. But it also revealed that the regulator is considering action against equity withdrawal and low-cost "interest-only" mortgages, and wants new powers to control buy-to-let lending. Remortgaging to fund holidays or pay off credit card bills rose dramatically this decade as households used their homes as a cash machine. The FSA found that between 2000 and 2007 British households borrowed £315bn against their homes for general consumer spending, rather than property improvements such as extensions. By 2007, at the peak of the property bubble, equity withdrawal had replaced home purchase as the main purpose of biwa pearl mortgage borrowing, with four of out 10 loans advanced for this purpose. "Equity withdrawal conceals and potentially exacerbates consumers' affordability problems," said the FSA. "Our analysis is at a very early stage, but one solution may be to limit the amount of equity a consumer can withdraw." The regulator is also clamping down on interest-only mortgages. In recent years growing numbers of homebuyers have turned to these as a way of affording high property prices, because this type of loan can be significantly cheaper than a traditional repayment mortgage. The FSA said it was "concerned" about interest-only deals because it was aware that some people opted for these because they could not afford a repayment mortgage. It has therefore lumped them into the "high-risk" product category, along with self-certified mortgages and loans for people with black marks on their financial records. They will not be banned, however. Instead, the FSA wants lenders to assess the affordability of interest-only mortgages using the figures for an equivalent repayment mortgage. Some will be surprised to see that Offset mortgages – deals that allow people to use their savings to reduce the interest they pay on their home loan – also feature on the FSA's high-risk product list. Some offset/flexible mortgages offer an overdraft-style facility, where borrowers can draw funds up to their credit limit. The regulator said it was concerned about this type of deal because "debt can increase above affordable levels through an overdraft facility". But the regulator ruled out a ban on controversial 125% mortgages, or jumbo loans of five or six times an individual's salary, which it said would be a "blunt tool". It found no automatic correlation between high LTVs and higher default rates. In 2008 only 5% of households with 90%-plus loans defaulted, compared to 14.5% of self-certified and buy-to-let loans. "Standard mortgages of 95-100% appear less likely to default than self-certified mortgages of 75-90%," it said. Citizen's Advice, which in 2008/09 dealt with 95,000 inquiries about arrears, 49% higher than the year before, said it welcomed stricter tests to ascertain consumers' ability to afford a mortgage. But the Association of Mortgage Intermediaries warned that more stringent criteria "may significantly increase the cost of borrowing for ordinary, responsible consumers". The Building Societies Association said it opposed an outright ban on self-cert. "We have always regarded self-certification mortgages as a akoya pearl 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%. However, such products are suitable for a minority of people, and an outright ban is not appropriate." | ||
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