It usually pays to learn from one’s past mistakes and the Financial Service Authority (FSA) is trying to make sure that the mortgage lending market doesn’t make mistakes again and bring down the economy to its knees. The FSA is putting new controls in place with its mortgage market review that will prevent another financial crisis due to a collapse of the mortgage lending market by putting controls in place to make it difficult for lenders to make risky loans. The FSA hopes to limit risky lending and loans from going to those who are unable to afford them and will most likely end up defaulting on them.
The FSA has issued the following statement in regards to their proposed plan: “The mortgage market review aims to address the major failures that have occurred in the mortgage market and to replace risky lending and unaffordable borrowing with common sense standards.”
The mortgage review has many critics. Most see the review as needed but that at present standards it will limit lending to those who have good credit histories and are considered safe and low risk. This could slow down any growth seen in the housing market.
Steve Morgan, the chairman of Redow a leading house builder in the UK said: “Deliberately suppressing housing demand at the very time that the country has a chronic housing shortage is laying the foundation for the next boom/bust cycle.”
“For generations 95% mortgages have been the norm … Yet the current generation of first-time buyers is being denied the opportunity that their parents and grandparents took for granted, simply because they are unable to secure an affordable mortgage with a modest deposit.”
Currently there are very few 95% mortgages available and the requirements to qualify for the loans is hard to meet and therefore very few are approved that apply.
Other critics, such as the Council of Mortgage Lenders, see the review as flawed. They defended their view in saying: “Even a modest rise in interest rates could lead to a significant increase in the number of families suffering financial distress. This is why it is imperative that we ensure lenders act responsibly and do not return to irresponsible practices, in order to protect consumers from taking on mortgages they cannot afford and potentially losing their homes. No doubt this is why our proposals have been characterised by a number of firms as simply marking a return to “sensible underwriting” and common sense.”