FSA bows to pressure on mortgages

THE Financial Services Authority will tomorrow bow to pressure from mortgage lenders to water down controversial proposals that would have made it even harder for potential home-buyers to get on the property ladder.

The City regulator’s long-awaited Mortgage Market Review is expected to row back on previous recommendations for a crackdown on lending, which consumer groups and lenders warned would strangle the already depleted mortgage market.

The FSA had been poised to introduce stringent affordability checks that would have restricted home loans to those with squeaky clean credit records and who could put down large deposits.

The proposed rules were a response to the housing market boom prior to the credit crunch, which was driven by risky mortgage lending, with mortgages given at 125 per cent of property values and up to seven times earnings.

The regulator also wanted to outlaw self-certification, interest-only loans and 100 per cent loans, among other suggestions that drew a robust response from lenders. Banks, building societies and consumer groups have lobbied hard against the recommendations during two years of consultations.

The Council of Mortgage Lenders (CML) warned that stricter affordability rules would hinder sales, send house prices crashing and create mortgage “prisoners” unable to remortgage when their deals end.

However, lobby groups are hopeful the proposals will have been significantly watered down, with a possible stay of execution for interest-only loans – albeit with stricter repayment vehicle requirements – and a relaxation of the affordability tests demanded of lenders.

Lenders will still have to verify borrowers’ income but the checks are expected to be less comprehensive than had been feared by lenders, who were concerned with the potential administration costs. The report will be published just days after the CML predicted a further decline in housing market activity next year as economic uncertainty lingers.

It expects net lending to fall from the estimated £9 billion this year to £5bn in 2012 and a drop of almost 30,000 in sales levels, to 825,000.

Bob Pannell, chief economist at the CML, said: “The weak state of the wider economy and household finances creates a challenging and highly uncertain backdrop for the housing and mortgage markets. Despite the fact that activity levels have already been subdued for several years, we have pencilled in a broadly flat picture – for both mortgage lending and property transactions - at least until real incomes show signs of stabilising as inflationary pressures recede.”