Many householders and borrowers have suffered from the bad mortgage lending that was endemic for the last 15 years. Northern Rock came to epitomise the bad lending that contributed to the financial collapse and follow on credit crunch.
UK lenders were bailed out by the tax payer and everyone is still paying for this action. The housing market ground to a virtual standstill, values plummeted and negative equity and repayment problems loomed.
Bad Mortgage Lending Practices and the Suffering
- The high loan to valuation ratios 125% in some cases. In retrospect this was gross over lending against week security.
- The lack of stress testing of the borrowers ability to repay. Care of the mortgagee was none existent.
- Inadequate assessment and checking of borrowers income. Personal debt increased often to unsustainable levels as did government and bank debt.
- Lax valuation criteria and lenders greed for a deal at all cost. Profits for the lender pain for the borrower.
- Excessive interest only lending with no affirmation that plans were in place to repay the capital. Long lasting and insurmountable debts.
- Creative and ‘flexible’ loan products driven by fees. Borrowers were caught with high fees.
Enter the FSA with the Speed of Light (Not)
‘The FSA wants to avoid history repeating itself and is proposing and consulting on three ‘new’ rules:
1. An affordability assessment must be carried out which includes verifying an individual or couple’s income. This was not always the case during the last boom.
2. Unavoidable bills such as utilities, council tax and spending on children must be taken into account.
3. All mortgage lenders must consider potential rises in interest rates and assess whether a borrower would be able to repay in such an eventuality.’
FSA Considering New Rules
- Regulation is still a ‘gentlemens club’ and problems may happen again as currently with SVR increases where lenders are currently testing the boundaries of the unacceptable.
- The onus should be on the lender to ensure regular interest and all capital payments are feasible. Borrowers should get more street wise after all the publicity and aggravation they have endured.
- Consumers need FSA protection from bad lending practices that can lead to the personal distress of arrears and repossessions.
- Rules need to avoid unintended consequences which is achieved by clarity, openness and frank exposure .
- Lenders need a clear and supportive regulatory framework so they can help restimulate the housing market
- New rules should avoid duplicating EU regulation.
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