LONDON Oct 25 Most Britons seeking a home loan
after next year will be required to get professional advice to
establish whether they can afford the repayments, the Financial
Services Authority said on Thursday.
Only people who earn 300,000 pounds a year, have assets
worth three million pounds or only want minor changes to an
existing loan will be exempt from a consultation.
The aim of the new rules which come into force on 26 April
2014 is to test affordability and end so-called "liar loans"
where the borrower has not been required to give proof of
The changes seek to end Britain's history of housing booms
and busts due to the country's love affair with home ownership,
creating rollercoaster rides for the economy.
The home loans market has already cooled sharply compared
with the run up to the 2007-09 financial crisis as lenders are
far stricter, forcing borrowers to stump up much bigger deposits
while turning down others.
"We recognise that many lenders are now using a far more
sensible set of lending criteria than before, but it is
important that these common sense principles are hard-wired into
the system to protect borrowers," FSA managing director Martin
Wheatley said in a statement.
"At the heart of the new measures is an affordability test
to check borrowers can meet the repayments of the mortgage they
Interest-only mortgages can be offered to anybody who shows
they have a credible repayment strategy, the FSA said. There are
no fixed caps on how much a bank can lend to a first time buyer,
or limits on lending to older people.
Wheatley said one rule will be introduced immediately to
deal with so-called "mortgage prisoners", who find it difficult
to remortgage because the value of their home has fallen.
The FSA estimates that 55 percent of former first-time
buyers who obtained a loan in 2005-11 could be "prisoners".
Over a fifth of former first-time buyers could also be in
negative equity, meaning the value of their home is less than
their outstanding loan.
Lenders would be allowed to make exceptions to the
responsible lending rules for such customers seeking to
remortgage, providing there is no increase in the outstanding
sum to be repaid.