New rules have been introduced into the UK to ensure that borrowers can afford their mortgage. This is a bid to make sure prices don’t fall in the future if homeowners become overstretched. While it’s highly unlikely house prices would massively fall in popular parts of the UK in the long-term, 2008 is still on the minds of regulators who want to avoid any potential slumps.
The Mortgage Market Review will stop interest-only and self-certified mortgages and prevent banks from relying on property prices increasing to balance the risk. As UK prices soar at the fastest pace since 2010, banks have started to up the ante and make more high loan-to-value mortgages. Recently it’s been reported that there’s more than eight buyers for every home in the UK – even more in London! What with foreign buyers snapping up property in prime London as well as the lack of housing supply, it’s no wonder that quality property is so sought-after. Help-to-Buy, a government-backed scheme to help first and second time buyers get onto the housing ladder, has also pushed prices higher.
The new regulations are pretty strict, with lenders assessing the impact of rising interest rates to see if potential buyers could afford them if they increased by five percent. There will be intense questionnaires as to spending habits that will check out a borrower’s history – such as whether they gamble or take payday loans. Some lenders are apparently even asking about haircuts, cleaning products – and even if couples are planning a family! It’s been reported that many new buyers and even those looking to remortgage, could be turned down. According to reports, Lloyds Banking Group, the country’s biggest mortgage lender, has said that the changes mean interviews with new customers could take around 15 minutes longer; which means the average length will be two hours. The extra questions will apparently include the future life plans of borrowers. Even evidence will be required, such as someone planning to cut back on working hours, or even take out a loan.
The regulator behind the new rules, the Financial Conduct Authority (FCA), claims they will: “hardwire sense into the mortgage market” in order to stop irresponsible lending. In the future, The Bank of England may make the tests even MORE strict, by applying higher borrowing costs, to see if they can be met by eager borrowers. The Bank of England governor, Mark Carney, said to reporters in November that he wanted to make sure households could: “withstand those shocks” if the worse came to the worse.
How things will play out depend on the next few months. We’ll be monitoring things closely here at House Price Predictions – stay posted!
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