The direction of the proposals put forward by the FSA is that legislation will be put in place to prevent lenders from inaccurately judging the ability of borrowers to repay. The proposals will also ensure the right information and advice if provided to borrowers – be they home movers, right-to-buy tenants or first-time buyers.
Although lenders will still have to check income details in each mortgage application, the FSA is no longer proposing that a borrower undergoes a detailed check of how they spend their money, but only be given a broad assessment of their “committed and essential household expenditure” instead.
Three main points that are to be proposed as changes when lenders assess a mortgage application are as follows:
- Borrowers can no longer rely on the potential rise in house prices as a claim of affordability to pay
- Always to assume that interest rates have the potential to rise from current levels.
- Interest only mortgages are to be assessed as repayment mortgages, the only exception being that there is a “believable” source of capital/income to cover repayment of the loan.
The proposed new rules also stipulate that interest only mortgages may still be offered to borrowers if there is a “credible” plan to cover repayment of the loan. This again cannot permit a borrower to reply on assuming they can cash in on the rising value of the property. People looking to buy Greater Manchester Houses will be affected by these eventual changes as historically this was a considerations amongst lenders.
It is proposed that any existing borrowers that already have a loan which could be excluded in the new rules, will not be prevented from remortgaging.