New mortgage rules unveiled by regulator

Revised proposals for a shake-up of the mortgage industry have been given a cautious welcome by lenders.

The Council of Mortgage Lenders (CML) had feared that plans by the Financial Services Authority (FSA) would harm consumers and lenders, but it said it was satisfied the FSA had listened to its concerns and would now provide “sensible safeguards”.

The new rules, which are likely to come into force in 2013, will aim to stop householders taking on mortgages that they cannot afford.

Lenders are being told they must up their game when it comes to assessing affordability. But the FSA is set to allow more flexibility for existing borrowers who might have found themselves unable to remortgage under the original draft proposals.

“The UK mortgage market has worked well for the vast majority of consumers,” said Lord Turner, chairman of the FSA.

“But in the run-up to the financial crisis, there was a tail of poor lending to borrowers who could not afford to repay out of income, with both lenders and borrowers assuming that house price rises would make repayment or refinance possible.

“As a result, while arrears in this recession have been significantly below the early 1990s, there have been major problems in specific consumer segments and regions, with many customers facing the distress of arrears and repossessions.

“The scale of payment problems would have been significantly greater if interest rates had not fallen to exceptionally low levels.”

He added: “The reforms to mortgage market regulation, which the FSA is now proposing for consultation, aim to ensure the continued provision of mortgage credit for the great majority of borrowers who can afford it, while preventing the re-emergence of the tail of poor lending practice which led to customer detriment.”

CML director-general Paul Smee said: “Lending needs to be responsible and done in a way which protects consumers.

“Rules need to be practical and avoid unintended consequences. Whilst there is much detail to be pored over, the FSA’s new proposals seem to strike broadly the right balance.

“If lenders are to make their contribution to improving the supply of housing and to

the wider agenda for economic growth, then they need a regulatory framework which also supports that objective.”

However, some queried the timing of the FSA’s move.

Andrew Baddeley-Chappell, head of mortgage strategy at Nationwide, said: “We welcome the review and the fact that the FSA has responded to the issues raised by borrowers and lenders.

“However, the current mortgage market is fragile and growth is relatively weak. With this in mind, we question whether now is the right time to ask the industry to divert its focus on to further regulatory changes.

“Even more regulation, expected from the EU, is likely to result in further changes to the regulatory framework. It would be far better for the UK and European regulation to happen at the same time.”