FSA 'stress tests' would ban half of all mortgages, warn lenders

About half of the eight million mortgages approved in the past five years would have been banned under the tougher affordability rules proposed by the Financial Services Authority (FSA), a study suggests.

Research published today by the Council of Mortgage Lenders (CML) will also say that 3.8 million of those loans have "performed" throughout the financial crisis and recession, with just 200,000 having defaulted. It comes at a time of mounting concern about the state of the housing market, with mortgage approvals running at close to historic lows and widespread predictions of a fresh collapse.

There was further evidence of that yesterday as a poll of purchasing managers in the construction industry showed a sharp fall in residential housebuilding. The survey, compiled by Markit and the Chartered Institute of Purchasing and Supply (CIPS), produced a reading of 45.4. Any reading below 50 indicates that activity is contracting.

The Markit/CIPS figure is the lowest since July 2009 and the first contraction in a year. The headline reading of 53.8, which was slightly above August's result of 52.1, shows that activity in other sectors is rising. Significantly, however, confidence hit an 18-month low. The report says much of the apparently good news resulted from an "11th-hour spending spree" by the previous Labour government.

Michael Coogan, director-general of the CML, said he feared the effect of the FSA's crackdown had been underestimated. "It is not possible to quantify the precise effect on future business but it does suggest the impact is likely to be higher than the regulator has yet acknowledged," he added.

"More borrowers would be protected from possible arrears and the risk of possession, but a substantially higher number of mortgages taken out between the second quarter of 2005 and the first quarter of 2009, which have shown no signs of payment difficulty, would not have been granted if the FSA's affordability approach had been in place."

Mr Coogan said the CML's research simulated the impact of the FSA's proposed changes to how mortgages were sold, based on data from recent years. The watchdog wants to force lenders to undertake far more detailed "affordability" tests before approving loans. They would have to consider a client's income and expenditure and assess each mortgage application as if it were a repayment mortgage, even if some or all of the loan was advanced on an interest-only basis.

Lenders would also have to look at a borrower's ability to repay over 25 years, even if the proposed loan was advanced over a longer term. They would have to apply an "interest rate stress test" to check that a loan would still be manageable if interest rates rose sharply. Lenders would also have to apply a "buffer" to people with poor credit histories, reducing their incomes by 20 per cent for the purposes of the affordability tests.

Industry experts fear that the FSA's proposals could take out of the property market thousands of first-time buyers – the people who are essential for it to work effectively.

Significantly, the CML study did not take into account all of the FSA's ideas, such as demanding that lenders also consider changes in a borrower's circumstances. This could further reduce the number of buyers able to obtain a mortgage.

Last night, the FSA defended its plans, saying they were designed to address "major failures that have occurred in the mortgage market". A spokeswoman added: "We are actively consulting all stakeholders to ensure we get the right solution. Our evidence shows that 16 per cent of borrowers are already financially overstretched and facing problems now as a result of their lenders' practices in the past.

"For now, borrowers are also benefiting from historically low interest rates and house price inflation, which cannot go on forever."

The FSA insisted it was "imperative that we take steps to protect vulnerable consumers and ensure lenders are making responsible decisions". "We will continue to work ... to establish a strong mortgage market where those who can afford mortgages are able to get them," it said. "It is in the interests of all that we get this right: both lenders and borrowers suffer from irresponsible lending."

Sport
world cup 2014A history of the third-place play-offs
News
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

Sport
The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
PROMOTED VIDEO
Voices
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
...and the weight loss industry is rubbing its hands in glee
News
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Sport
Yaya Touré has defended his posturing over his future at Manchester City
News
Detail of the dress made entirely of loom bands
news
Life and Style
beauty
Sport
There were mass celebrations across Argentina as the country's national team reached their first World Cup final for 24 years
transfersOne of the men to suffer cardiac arrest was 16 years old
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
News
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Sport
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

    A History of the First World War in 100 Moments

    Peace without magnanimity - the summit in a railway siding that ended the fighting
    Scottish independence: How the Commonwealth Games could swing the vote

    Scottish independence: How the Commonwealth Games could swing the vote

    In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
    Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

    A writer spends a night on the streets

    Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
    Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

    UK's railways are entering a new golden age

    New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
    Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

    Conchita becomes a 'bride' on Paris catwalk

    Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
    Pétanque World Championship in Marseilles hit by

    Pétanque 'world cup' hit by death threats

    This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
    Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

    Why did we stop eating whelks?

    Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
    10 best women's sunglasses

    In the shade: 10 best women's sunglasses

    From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
    Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

    World Cup final: Messi? Mascherano is key for Argentina...

    No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
    Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

    Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

    18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice