The housing market may slump under the new rules, the CML hints The Council of Mortgage Lenders (CML) says plans by the City regulator to restrict mortgage lending would “sacrifice” many good borrowers.
The Financial Services Authority (FSA) wants to force lenders to be much more careful about to whom they lend.
It says the new rules are essential to “protect vulnerable customers”.
But the CML says that if the suggested new rules had been in place from 2005 to 2009, about half of all mortgages would not have been granted.
It says most of them, 3.8 million, have in fact turned out to be good loans.
The CML has already warned that one part of the FSA’s proposed forthcoming rules, insisting that lenders verify the income of all borrowers, would lead to house prices falling.
But it has turned its attention to other aspects of the proposed rules, such as:
assessing an applicant’s income and expenditureassessing their ability to repay on a full capital-and-interest basisassuming loans are for no longer than 25 yearsrestricting the size of loans to people with past payment problems andassuming that interest rates might rise from their initial level.
The CML believes that these rules would simply be far too strict and therefore unnecessary.
Taking all the new changes together, the CML concludes that 51% of all mortgages lent in the four years it examined would not have been made.
“We believe the current proposals sacrifice far too many borrowers”
CML
But it calculates that only 151,000 arrears cases and 30,000 repossessions would have been prevented.
“We believe the current proposals sacrifice far too many borrowers,” the CML said.
“Each additional element of the FSA’s proposals would result in greater volumes of arrears and possessions cases prevented, and stress and financial loss avoided.
“But at the same time, ever greater numbers of borrowers [will be] denied credit without evidence of any payment problems.”
The FSA said that the proposals were designed to affress the “major failures” that have occured in the mortgage market – failures that are still affecting customers today.
“Our evidence shows that 16% of borrowers are already financially overstretched and they are facing problems now as a result of their lenders’ practices in the past,” the regulator said in a statement.
“But for now borrowers are also benefiting from historically low interest rates and house price inflation – which cannot go on forever.”
The CML was careful to stress that its analysis of the impact on past lending did not mean it was predicting a similar impact in the future.
But that is clearly the worry at the heart of the CML’s analysis.
It said the new rules would particularly affect first-time buyers and new business.
“Around 730,000 first-time buyers over the period between the second quarter of 2005 and the first quarter of 2009 – 95% of the first-time buyers who would have been denied their mortgage under the rules as proposed – experienced no payment difficulties,” it said.
The FSA is currently consulting on its new rules, which are scheduled to start early next year.
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