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."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Gillian Anderson lays into gender disparity in Hollywood
- 1 Snoop Dogg and Jared Leto buy a stake in Reddit as A-list invests $50m
- 2 Prince held a Facebook Q&A and this is the only question he answered...
- 3 'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
- 4 35,000 walrus gather ashore on north-west Alaska beach 'for a rest'
- 5 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
The Osborne Ultimatum: Chancellor’s benefits freeze bombshell will affect ten million households
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Mark Reckless becomes second Tory MP to defect to Ukip in a month
Should gay sex be illegal? 16% of Britons think so
Benefits 'smart cards' plan revealed by Iain Duncan Smith to stop claimants spending welfare money on alcohol
- < Previous
- Next >
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...
Day In a Page
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors