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These new FSA mortgage rules do nothing for a trapped generation These new FSA mortgage rules do nothing for a trapped generation
(35 minutes later)
After three years of intensive investigation and research into Britain's creaking mortgage market, highly paid regulators at the Financial Services Authority have reached a dramatic conclusion. In future, anyone who takes out a loan will have to show that (a) they have an income and (b) they can afford to repay the money.After three years of intensive investigation and research into Britain's creaking mortgage market, highly paid regulators at the Financial Services Authority have reached a dramatic conclusion. In future, anyone who takes out a loan will have to show that (a) they have an income and (b) they can afford to repay the money.
It is, of course, stupefying that this wasn't always the case. Still, the banks and building societies that brought us 125% mortgages, "liar loans" (the industry prefers the label "self certification") dud endowments and pointless payment protection insurance, are asking to be treated "sensitively". The Council of Mortgage Lenders says it "hopes that the rules will be underpinned by sensitive supervision to help the industry".It is, of course, stupefying that this wasn't always the case. Still, the banks and building societies that brought us 125% mortgages, "liar loans" (the industry prefers the label "self certification") dud endowments and pointless payment protection insurance, are asking to be treated "sensitively". The Council of Mortgage Lenders says it "hopes that the rules will be underpinned by sensitive supervision to help the industry".
The new rules will, the FSA says, "hard wire" common sense into a system that evidently lost its marbles during the house price boom. No one can argue against a return to prudence, and in any case, much of what the FSA wants is already in place as cash-crunched lenders no longer have easy money to throw around. High deposits, stringent borrowing criteria and income tests are now commonplace.The new rules will, the FSA says, "hard wire" common sense into a system that evidently lost its marbles during the house price boom. No one can argue against a return to prudence, and in any case, much of what the FSA wants is already in place as cash-crunched lenders no longer have easy money to throw around. High deposits, stringent borrowing criteria and income tests are now commonplace.
But make no mistake, the losers will be the young who won't have a chance of accessing the jumbo interest-only loans their parents took to buy a property and bid up prices. Sadly, the biggest hurdle in the mortgage market – absurdly high house prices – remains firmly in place, and is likely to stay there while construction remains catastrophically low and green belt land politically gridlocked. The FSA says these rules won't hurt first-time buyers, but everyone knows the mortgage famine will permanently exclude a whole generation from the fabled first foot on the property ladder.But make no mistake, the losers will be the young who won't have a chance of accessing the jumbo interest-only loans their parents took to buy a property and bid up prices. Sadly, the biggest hurdle in the mortgage market – absurdly high house prices – remains firmly in place, and is likely to stay there while construction remains catastrophically low and green belt land politically gridlocked. The FSA says these rules won't hurt first-time buyers, but everyone knows the mortgage famine will permanently exclude a whole generation from the fabled first foot on the property ladder.
Curiously, the FSA has decided that one group of borrowers won't have to live under the get-tough new regime. They are the buy-to-let brigade, who, as they are treated as commercial borrowers, will still be able to take cheaper interest-only loans, and suffer less onerous personal lending checks. So a first-time buyer who somehow scrapes together the huge deposit required might bid on a £100,000 home for sale, only to find it taken by a landlord who can finance the purchase more cheaply, and probably wangle the tax system in their favour, too. Curiously, it has been decided that one group of borrowers won't have to live under the get-tough new regime. They are the buy-to-let brigade, who, as they are treated as commercial borrowers, will still be able to take cheaper interest-only loans, and suffer less onerous personal lending checks. So a first-time buyer who somehow scrapes together the huge deposit required might bid on a £100,000 home for sale, only to find it taken by a landlord who can finance the purchase more cheaply, and probably wangle the tax system in their favour, too.
The new rules also benefit the owners of the congealed wealth from the boom years. Through little effort of their own, they have built up "equity" (money on paper) which allows them to remortgage cheaply (as low as 1.99% now at Tesco). That money can be passed on to sons or daughters. If your parents benefited from the boom years, you're in luck. The rest of you can rent. And as every year the rent rises faster than your earnings, your chances of saving enough for a deposit move ever further into the distance.The new rules also benefit the owners of the congealed wealth from the boom years. Through little effort of their own, they have built up "equity" (money on paper) which allows them to remortgage cheaply (as low as 1.99% now at Tesco). That money can be passed on to sons or daughters. If your parents benefited from the boom years, you're in luck. The rest of you can rent. And as every year the rent rises faster than your earnings, your chances of saving enough for a deposit move ever further into the distance.
There are, of course, lots of wise new rules from the FSA's review. It is addressing the issue of "mortgage prisoners" trapped in negative equity who can't switch providers and are forced to stay on a lender's sky-high interest rate. It is taking a more nuanced view on the self-employed who, like first-time buyers, have had severe issues with accessing finance in recent years.There are, of course, lots of wise new rules from the FSA's review. It is addressing the issue of "mortgage prisoners" trapped in negative equity who can't switch providers and are forced to stay on a lender's sky-high interest rate. It is taking a more nuanced view on the self-employed who, like first-time buyers, have had severe issues with accessing finance in recent years.
Eventually, house prices will deflate. The "value" of a property is purely a function of how much a lender is willing to lend. Lower volumes of lending must eventually translate into lower prices. But along the way, we are trapping a whole generation of families into substandard, under-regulated rental properties. We needed these mortgage rules a decade ago, not today. And we urgently need a rental market review. But with the landlords in power, don't bet on it.Eventually, house prices will deflate. The "value" of a property is purely a function of how much a lender is willing to lend. Lower volumes of lending must eventually translate into lower prices. But along the way, we are trapping a whole generation of families into substandard, under-regulated rental properties. We needed these mortgage rules a decade ago, not today. And we urgently need a rental market review. But with the landlords in power, don't bet on it.