Implications of the FSA Mortgage Changes for the Housing Market

publication date: Dec 23, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Implications of the FSA Mortgage Changes for the Housing Market

The UK Housing Market

The changes to the market are unlikely to have much impact in the short term as currently mortgage lending criteria is pretty much sticking to similar rules as the FSA intend to impose. 

The main impact will really take place when the economy and the market is likely to start recovering. Normally during a recovery, lending criteria will be relaxed a little as house prices start to rise rather than fall and lenders feel more secure in approving mortgage loans.

As a result, the tighter lending criteria will prevent a relaxation in supply of funds, so even if buyer demand grows, more people will find it tougher to secure a mortgage offer. This will restrict demand and as more people look to sell, house prices could well be held back as supply, ie the number of houses for sale, could increase faster than buyers' ability to secure funding to purchase properties.

What are the implications for you?
As ever, the impact will not be the same for everyone. For those who are self employed, the lack of self certification mortgages and the sometimes tough task of proving income, particularly in the first year or two of starting a business, could make it tougher for new business owners to buy or re-mortgage their home.

The second group of buyers likely to find it tougher would normally be First Time Buyers (FTBs). This is unlikely to affect them from securing a mortgage offer as the government has put in place the Mortgage Indemnity agreement and is supporting initiatives to help FTBs to buy their first home.

What FTBs will find tough though is the amount of time it will take to secure a mortgage. Over the last 10 years, many have used the internet to choose a mortgage, applying in 15 minutes. The likelihood of this being possible in the future is slim. Mortgages will be tough to ‘do yourself' from 2012 onwards and will therefore have to seek advice from mortgage professionals and independent financial advisors. They will be able to go through your finances with you, work out what you can really afford and then approach the right lenders for your personal circumstances. Better still they will be able to fill in the lenders' forms which are likely to get more complicated as the mortgage regulations tighten.

For those homeowners who are struggling already to fund their mortgage, or have a mortgage now but don't meet the new criteria, lenders are being given the flexibility to continue to loan money, as long as you have been able to make the repayments for 12 months or more. You may though not get the best rates, so be prepared to potentially have higher monthly payments in the future.

Any Good News?
Yes there is! Potentially one of the main benefits is that lenders will get better at assessing affordability rather than treating borrowers the same. For example, I'm married, in my 40s but have no kids and spend little as I work a lot! What I can afford on a mortgage therefore is much more than someone the same age, but overstretched with four children to take care of and then potentially fund their education in the future.

The same criteria should also be applied in the future for those in their 20s. Those who show they can save money and live within their means should be offered mortgages in the future, while those who prefer to ‘live the life' and spend whatever comes in will have a great time, be able to rent a good home, but will find it tougher to secure finance to buy one without any record of saving.

Finally, what it might help do in the longer term is two things. Firstly encourage lenders to let landlords have long term tenancy agreements with renters after a period of time proving they can afford the rent and are a responsible tenant.

Secondly, it may well mean that lenders will also start taking into account what tenants have proven they can afford on a monthly basis. For example, a tenant might be paying £1,000 per month rent, but to buy a property they just need to cover £800 a month in mortgage payments. However at the moment, their income assessment may suggest they can't afford the £800 a month, meaning they are trapped in paying higher rent. If lenders can prove they are better at assessing individual affordability, then this move would potentially allow more renters to secure mortgages and buy their own home in the future.

The changes still require some input from the industry and you can input your thoughts via the feed back page on the FSA website and they aren't expected to be implemented until 2013.

For those of you that don't know whether your mortgage is financially secure for the future and want to understand the implications, it is worth making your New Year's resolution to do so before any changes take effect!


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