Borrowers will face mortgage affordability tests under plans for “more intrusive” regulation proposed by the City watchdog.
The Financial Services Authority (FSA) is also calling for a ban on self-certification mortgages and loans which combine high-risk lending characteristics.
The regulator also wants to bring buy-to-let lending and second-charge mortgages, which enable people to take out loans secured on their property, under its scope.
These latest proposals by the FSA do smack of slamming the door after the horse has bolted.
Reckless mortgage lending is behind us.
No one wants to lend any more; lenders want to hang on to every pound of capital they can.
The main issue borrowers face just now is finding a mortgage at a competitive price which is not loaded with arrangement fees.
When you consider that the base rate is 0.5%, mortgage rates typically in the region of 5% are historically very expensive, and are really quite hard to get if you want to borrow more than 75% of the value of the property.
This makes life very tough for first-time buyers or homeowners who have borrowed high multiples in the past who now want to remortgage or move house.
It is a bit of a licence to print money for lenders with customers with high loan-to-value loans because they know they won’t be able to go anywhere else for a mortgage very easily.
What the consumer wants just now is not tougher regulation which makes it more difficult to lend, or gives reasons not to lend, it is an environment which encourages competition between lenders and creates the conditions where lenders are able to lend a bit more freely again.
First-time buyers and the self employed would appear to be the biggest losers under the proposals, but in truth things are already really tough for these groups because high loan-to-value mortgages and self-certification mortgages (needed by the self-employed as earnings fluctuate) are already in extremely short supply.
The mortgage industry has regulated itself already in this regard. A strong case could be argued for some relaxation in these areas, not increased regulation and intervention.
With the new proposals there is a real risk that the pendulum could swing too far in the opposite direction.
We could have done with more responsible lending in the run to last year, and increased regulation may have helped then.
Gordon Wilson is managing director of financial adviser Thomson Shepherd. He can be contacted on 01224 619215