30th December 2011

FSA Mortgage Market Review

I was interested to read the reports on the FSA Mortgage Market Review.  As had been widely trailed previously, the proposals focus on a new affordability regime where the onus is on the lender to show that the borrower can afford to repay the mortgage and also cover life costs.  There are requirements that borrowers should be able to afford an increase of 1% in Base Rate.  Interest only mortgages have not been banned as was widely anticipated but borrowers now must have a credible way of repaying them and that cannot rely on the assumption that house prices will rise.  Lord Turner, Chairman of the FSA said “We believe these proposals will hardwire common sense standards into mortgage lending and guard against the risky lending practices of the past – leaving most borrowers unaffected but better protected.”

While there are formal guidelines in relation to mortgage lending I would have hoped to have seen this coupled with proposals from the Government to stimulate the mortgage market.  My fear is that the use of tighter rules will stifle the market and make it even harder to obtain mortgage lending.

These proposals do not come into effect until 2013 and I will keep you updated regarding any other comments.

Lindsay Darroch
Partner & Head of Property



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