Proposals to be published in October by the Financial Services Authority (FSA) will include buy-to-let regulation and second charges secured on homes, The Independent has reported. The FSA blames the global financial crisis on weak regulation for home lending and it plans to clamp down on mortgages.
Jon Pain is the managing director of retail business at the FSA reviewing the rules. Another of his considerations is to cap the amount that can be lent as a mortgage, in the form of a limit on the number of multiples of the buyer?s income or the proportion of a property?s value. Loans to sub-prime borrowers and mortgages loaned without clear proof of income will also be severely curtailed.
The FSA wants to rule out the possibility of five times multiples or 125 per cent mortgages in the future.
The review of the mortgage market was started even before the credit crunch hit, which has seen the collapse of lenders such as Northern Rock and Bradford & Bingley. Not only lax rules by lenders but also greedy borrowers were blamed by the FSA, with some lying on self-certification forms to get higher loans.
Clearer explanations about the costs and risks involved in mortgages must be made by lenders. The regulator will also look at mortgage intermediaries, thought to be used more to access loans, rather than for genuine advice.
Although buy-to-let mortgages were left out of FSA regulation in 2004 ? as they were considered to be investments rather than owner dwellings ? it is thought the FSA will recommend they now come under its remit. However, the Government will have to rule on this.
The FSA wants secondary loans secured against property to be included under its control too, and has said that such loans add to a borrower?s overall debt.
