The Financial Services Authority (FSA) is due to take the heat off existing mortgage-holders with a decision not to require banks and other mortgage-lenders to apply harsh new rules.
On Monday, the regulator will announce the results of a two-year consultation, in which it was feared that mortgage-holders would be clobbered with rules that would make it harder for them to remortgage or move home.
The consultation has been looking to find a way to prevent the kind of risky lending that led to the credit crunch in 2007, but industry representatives and consumer groups have warned that stricter lending rules for existing mortgage-holders could trap them in their current property, making them “mortgage prisoners”. The Council for Mortgage Lenders published research earlier in the year which showed that the FSA’s unmodified proposals would have left some 2.2 million homeowners unable to obtain their present mortgage.
It has now been reported that on Monday the FSA will allow lenders to take a softer line on existing borrowers compared to new mortgage customers. If an existing mortgage-holder is classed by the lender as a “good borrower”, then the new strict lending rules and affordability tests will not be applied.
However, for all new mortgage applications, the watchdog will still require all lenders to strictly check the income of the borrower and apply a range of affordability tests to prevent them taking out mortgages they cannot afford.
In particular, self-certification loans will be banned – these so-called “liar loans” have in the past enabled around a million UK borrowers to take out mortgages without previously proving their income.