Less Mortgage Deals
Fewer new mortgage deals are likely following proposals from the Financial Services Authority (FSA).
One of the main proposals will restrict a bank’s willingness, and ability, to provide a mortgage to those on low salaries, or those who cannot put down a large deposit.
This a move by the FSA to stabilise a shaky U.K. banking sector and avoid another Northern Rock.
But the FSA has fallen short of bringing in draconian measures, much to the relief of the mortgage companies. Many believed that more formal rules would be announced by the FSA Chairman Lord Turner. Instead, banks will obliged to keep in place higher levels of capital than before, meaning that individual banks will have less money to lend, especially in those areas which are now regarded as very risky, including high loan-to-value (LTV) mortgages.
Perversely, this is good news for savers, as banks will now have to attract more savers who will have to be attracted with higher rates. Equally, the need for increased bank capital will also mean that savers will be reassured as to their viability.
But the FSA hasn’t quite finished yet, and Lord Turner might yet introduce caps on the amount homeowners can borrow, weighed against the value of their property and their income. This could mean the end of 100% mortgages and no more than four times a person’s income. A full review of mortgages and the regulations that govern them is expected in the autumn.
Mortgage brokers are unhappy with many of the rules being mooted, as they feel that first time buyers and many buyers able to afford LTV deals, will be unable to buy the properties they want and that this will further depress the housing market.
It’s reckoned in the industry that some 40% of people looking for a new mortgage deal need to borrow up to 90% of the value of the home. And that most LTV mortgages entered into are by those who thought that rates would remain low and who didn’t have large deposits. These are now being advised by brokers to complete new deals soon, in case new legislation tightens up on the rules.
Guest Article by Neil Camp
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My name is Alan Potts and I'm the Editor of the BUYability web site and Managing Director of BUYability Limited. You can connect with me or keep up to date with new posts on this blog via the following social media sites: 
