Mortgage Borrowers Face Restrictions On Income Multiples And Minimum Deposits

[Total_Injustice]

"The chairman of the Financial Services Authority has also hinted that the amount that buyers could borrow as a multiple of income could be controlled in future.

In evidence to the Treasury Select Committee, Lord Turner said: "We can certainly see a strong argument for us getting more involved in product regulation than we have in the past."

Gordon Brown recently suggested that 100pc mortgages should be banned. Loans of 100pc – or even more in some cases – are seen as part of a culture of "irresponsible" lending during the boom years.

When asked about 100pc mortgages, Lord Turner told the committee: "I do not think we can simply narrow it to the 100pc issue. I think the bigger issues might be should we be into 85pc or 90pc" – implying that the FSA might prevent loans being granted unless buyers had deposits of 10pc or even 15pc of the property value.

But he hinted that income multiples could be targeted instead. Before the property boom lenders typically restricted home loans to 3.5 times the borrower's salary. But when prices started to take off, putting many properties beyond reach if loans were restricted to that level, some banks started to lend as much as six times salary..."

Time to nail your colours to the wall Gordon and state your future aspiration for mortgage lending.

I'm sure it would be frigged to rely upon dual family income but I'd like to see it happen.

Can't understand why this has only got 164 signatures: Lending Reform

Edited February 26, 2009 by Total_Injustice

[Imminent_plunge]

"The chairman of the Financial Services Authority has also hinted that the amount that buyers could borrow as a multiple of income could be controlled in future.

In evidence to the Treasury Select Committee, Lord Turner said: "We can certainly see a strong argument for us getting more involved in product regulation than we have in the past."

Gordon Brown recently suggested that 100pc mortgages should be banned. Loans of 100pc – or even more in some cases – are seen as part of a culture of "irresponsible" lending during the boom years.

When asked about 100pc mortgages, Lord Turner told the committee: "I do not think we can simply narrow it to the 100pc issue. I think the bigger issues might be should we be into 85pc or 90pc" – implying that the FSA might prevent loans being granted unless buyers had deposits of 10pc or even 15pc of the property value.

But he hinted that income multiples could be targeted instead. Before the property boom lenders typically restricted home loans to 3.5 times the borrower's salary. But when prices started to take off, putting many properties beyond reach if loans were restricted to that level, some banks started to lend as much as six times salary..."

Time to nail your colours to the wall Gordon and state your future aspiration for mortgage lending.

I'm sure it would be frigged to rely upon dual family income but I'd like to see it happen.

Can't understand why this has only got 164 signatures: Lending Reform

Gordon's aspiration would be 10x joint income, 150% max LTV and easy, immediate MEWing if your house has actually made some money. Studio flats to reach £1m by 2015. It's the miracle economy, innit?

[Mikhail Liebenstein]

Gordon's aspiration would be 10x joint income, 150% max LTV and easy, immediate MEWing if your house has actually made some money. Studio flats to reach £1m by 2015. It's the miracle economy, innit?

You forgot that the above would only buy you 50%, the rest being shared equity.

[abharrisson]

The FSA have been truly appalling when it comes to mortgages and regulation..... pre the collapse very very few dodgy brokers had their licences removed... post the collapse hundreds have.... horse and bolted.

before they took over mortgage regulation they proposed having done months of work NOT regulating (can you believe it) lifetime mortgages and equity release ( where normally pensionable people effectievly "sell" a proportion of theri homes to a finance provider).... it was only after widespread cries of foul from lenders and brokers who saw the potential scale of difficulties this might create that they decided to regulate.

their "rule" book is if printed out on double sided paper is six feet long.... but surprise surprise there are NO rules in there pretty much , only principles........ how much simpler the world would have been if there had at least been some rules.

I cannot see the FSA moving away from "principles" based regulation... by definition in "principles" based regulation there are very few rules so quite how they would aim by focussing on products to put perameters in like though shall not lend beyond 85% or though shall not lend more than 3.5 times is frankly beyond me..... I think this is flavour of month and the FSA will not find a way to make it fly without switching to a rules based system which I am not convinced they can do or want to do or will do.

Lets remeber the FSA have always faced this problem.... they have never regulated products per se..... and yet most of the problems have been with products..... prescipice bonds, endowments etc etc...... now lets say they move to regulating products.... take lets funds that invest in far east smaller companies..... the top company has a fund which over four years delivers 20% growth... the bottom one a loss of 50%..... I suspect whatever they introduce still wouldn't mean the bottom guy gets hung drawn and quartered even though his "product" has clearly not been fit for purpose even though they will supposedly be regulating products.

Looking at borrowing products....... I really cannot see restrictions like 85% and 3.5 times coming in as a carte blanche...... it is very far away from the afordability models of today and is too blunt an instrument. What they could do I suppose is to say that each bank should not lend to say over 95% AND that each and every loan should be supported by proven income but that banks can still lend at whatever multiple they like. This would control risk excesses but at the same time allow competition..... the problem with this whole arena is that there are millions upon millions of mortgages (like it or not) already lent under existing formulae so changing the rules radically now will lock millions upon millions of people into a state of limbo. Equally the rules will ALWAYS have loopholes which will exploited by the knowing few to the detriment of the masses (however much you want it not to be so that will always happen mostly legally)........... whilst there needs to be something put in place to control "excessive exuberance" I really don't think on the basis of their track record that a rules based product based system governed by the FSA is going to deliver it. What we need is a stabilising influence over house prices.... I for one would prefer some form of BOE jurisdiction here where house prices are a consideration in thesetting of interest rates...... the problem of that of course is that reigns in business growth becasue when we come out of this house prices might well gallop away forcing the BOE to raise the cost of funds which in turn will stifle business recovery. There clearly are not any simple solutions.... but I would NOT give the fSA more power or indeed trust them to come up with a rules based system for borrowing products that either works or isn't incredibly damaging .

This is the phase of the cycle.... the blame game... when there is real risk in making snap decisions driven by a political agenda to be seen to be fixing things. These type of decisions risk being even more damaging long term than the even the current problems we face.

[Total_Injustice]

You forgot that the above would only buy you 50%, the rest being shared equity.

CPI vs RPI.

‘Light Touch’ regulation.

Shared equity.

50 year mortgages.

8x multiple of income.

125% LTV.

Gordon might blame everyone else but her presided during all of them.

[Selling up]

But when prices started to take off, putting many properties beyond reach if loans were restricted to that level, some banks started to lend as much as six times salary.

Do you know something interesting?

When the light comes on in my bedroom, it makes my finger move on the light switch.

[Moo]

This is the phase of the cycle.... the blame game... when there is real risk in making snap decisions driven by a political agenda to be seen to be fixing things. These type of decisions risk being even more damaging long term than the even the current problems we face.

Yes, I agree over-regulation could be very damaging. However, if the regulatory limits were effectively set at "slightly laxer than what the lenders generally did for themselves prior to securitisation", I would find it hard to believe they would be any more damaging and restrictive than what is happening anyway, whether anyone likes it or not, as a result of the freebie money chicken keeling over dead.

Hell, you never know... with a sensibly enforced (i.e. you prosecute borrowers first and foremost, and make sure it's done very publicly) set of rules, you may well see a situation where, within the rules, there is total fulfilment of demand simply because the quality of the loans issued is very much a know quantity.

[R K]

Financial "products" - and I absolutely hate that word, it's mostly just different ways of either taking or paying interest - should be regulated more like they are in the drugs industry.

[Total_Injustice]

The FSA have been truly appalling when it comes to mortgages and regulation..... pre the collapse very very few dodgy brokers had their licences removed... post the collapse hundreds have.... horse and bolted.

before they took over mortgage regulation they proposed having done months of work NOT regulating (can you believe it) lifetime mortgages and equity release ( where normally pensionable people effectievly "sell" a proportion of theri homes to a finance provider).... it was only after widespread cries of foul from lenders and brokers who saw the potential scale of difficulties this might create that they decided to regulate.

their "rule" book is if printed out on double sided paper is six feet long.... but surprise surprise there are NO rules in there pretty much , only principles........ how much simpler the world would have been if there had at least been some rules.

I cannot see the FSA moving away from "principles" based regulation... by definition in "principles" based regulation there are very few rules so quite how they would aim by focussing on products to put perameters in like though shall not lend beyond 85% or though shall not lend more than 3.5 times is frankly beyond me..... I think this is flavour of month and the FSA will not find a way to make it fly without switching to a rules based system which I am not convinced they can do or want to do or will do.

Lets remeber the FSA have always faced this problem.... they have never regulated products per se..... and yet most of the problems have been with products..... prescipice bonds, endowments etc etc...... now lets say they move to regulating products.... take lets funds that invest in far east smaller companies..... the top company has a fund which over four years delivers 20% growth... the bottom one a loss of 50%..... I suspect whatever they introduce still wouldn't mean the bottom guy gets hung drawn and quartered even though his "product" has clearly not been fit for purpose even though they will supposedly be regulating products.

Looking at borrowing products....... I really cannot see restrictions like 85% and 3.5 times coming in as a carte blanche...... it is very far away from the afordability models of today and is too blunt an instrument.

What they could do I suppose is to say that each bank should not lend to say over 95% AND that each and every loan should be supported by proven income but that banks can still lend at whatever multiple they like. This would control risk excesses but at the same time allow competition....

Agreed, if they were to establish truly prudent lending criteria this would cause a significant fall in house prices – they’re no likely to do that .

...the problem with this whole arena is that there are millions upon millions of mortgages (like it or not) already lent under existing formulae so changing the rules radically now will lock millions upon millions of people into a state of limbo.

So does this mean that there won't be any real change and it's all spin?

Equally the rules will ALWAYS have loopholes which will exploited by the knowing few to the detriment of the masses (however much you want it not to be so that will always happen mostly legally)........... whilst there needs to be something put in place to control "excessive exuberance" I really don't think on the basis of their track record that a rules based product based system governed by the FSA is going to deliver it. What we need is a stabilising influence over house prices.... I for one would prefer some form of BOE jurisdiction here where house prices are a consideration in thesetting of interest rates...... the problem of that of course is that reigns in business growth becasue when we come out of this house prices might well gallop away forcing the BOE to raise the cost of funds which in turn will stifle business recovery. There clearly are not any simple solutions.... but I would NOT give the fSA more power or indeed trust them to come up with a rules based system for borrowing products that either works or isn't incredibly damaging .

I can see the argument for decoupling the rate of interest for mortgage lending from business lending.

I agree that blunt measures are not up to the job, I am just aggrieved that robust policy in this area is completely lacking. If they really want stability, they need to establish and publish at coherent approach to mortgage lending, and then stick to it.

They could also revamp the selling process.

Until they get a grip of this everything they say is spin, and serves only to confuse the market place in a vain attempt to get re-elected.

[Sir Sidney Ruff-Diamond]

Can't understand why this has only got 164 signatures: Lending Reform

Hmm. What do you think is the purpose of online petitions? To allow the people to make their voices heard? Or for the incompetent government to harvest ideas for reform?

[Guest DissipatedYouthIsValuable]

Financial "products" - and I absolutely hate that word, it's mostly just different ways of either taking or paying interest - should be regulated more like they are in the drugs industry.

Quite.

Deliberate obfuscation of charges.

[shindigger]

The FSA have been truly appalling when it comes to mortgages and regulation..... pre the collapse very very few dodgy brokers had their licences removed... post the collapse hundreds have.... horse and bolted.

before they took over mortgage regulation they proposed having done months of work NOT regulating (can you believe it) lifetime mortgages and equity release ( where normally pensionable people effectievly "sell" a proportion of theri homes to a finance provider).... it was only after widespread cries of foul from lenders and brokers who saw the potential scale of difficulties this might create that they decided to regulate.

their "rule" book is if printed out on double sided paper is six feet long.... but surprise surprise there are NO rules in there pretty much , only principles........ how much simpler the world would have been if there had at least been some rules.

I cannot see the FSA moving away from "principles" based regulation... by definition in "principles" based regulation there are very few rules so quite how they would aim by focussing on products to put perameters in like though shall not lend beyond 85% or though shall not lend more than 3.5 times is frankly beyond me..... I think this is flavour of month and the FSA will not find a way to make it fly without switching to a rules based system which I am not convinced they can do or want to do or will do.

Lets remeber the FSA have always faced this problem.... they have never regulated products per se..... and yet most of the problems have been with products..... prescipice bonds, endowments etc etc...... now lets say they move to regulating products.... take lets funds that invest in far east smaller companies..... the top company has a fund which over four years delivers 20% growth... the bottom one a loss of 50%..... I suspect whatever they introduce still wouldn't mean the bottom guy gets hung drawn and quartered even though his "product" has clearly not been fit for purpose even though they will supposedly be regulating products.

Looking at borrowing products....... I really cannot see restrictions like 85% and 3.5 times coming in as a carte blanche...... it is very far away from the afordability models of today and is too blunt an instrument. What they could do I suppose is to say that each bank should not lend to say over 95% AND that each and every loan should be supported by proven income but that banks can still lend at whatever multiple they like. This would control risk excesses but at the same time allow competition..... the problem with this whole arena is that there are millions upon millions of mortgages (like it or not) already lent under existing formulae so changing the rules radically now will lock millions upon millions of people into a state of limbo. Equally the rules will ALWAYS have loopholes which will exploited by the knowing few to the detriment of the masses (however much you want it not to be so that will always happen mostly legally)........... whilst there needs to be something put in place to control "excessive exuberance" I really don't think on the basis of their track record that a rules based product based system governed by the FSA is going to deliver it. What we need is a stabilising influence over house prices.... I for one would prefer some form of BOE jurisdiction here where house prices are a consideration in thesetting of interest rates...... the problem of that of course is that reigns in business growth becasue when we come out of this house prices might well gallop away forcing the BOE to raise the cost of funds which in turn will stifle business recovery. There clearly are not any simple solutions.... but I would NOT give the fSA more power or indeed trust them to come up with a rules based system for borrowing products that either works or isn't incredibly damaging .

This is the phase of the cycle.... the blame game... when there is real risk in making snap decisions driven by a political agenda to be seen to be fixing things. These type of decisions risk being even more damaging long term than the even the current problems we face.

Yes, but maybe Lord Turner ought to be given a chance. Hes new in the job.

Howard Davies seems to have scraped through this ok doesnt he?

[Optimuswolf]

You can question the FSA about a lot of things, but if you want evidence that Turner takes things seriously, just knock yourself out reading:

http://www.webarchive.org.uk/pan/16806/200...nrep/index.html

and

http://www.webarchive.org.uk/pan/16806/200...nrep-index.html

The guy will not make snap decisions without having the background and the evidence.

[Total_Injustice]

Hmm. What do you think is the purpose of online petitions? To allow the people to make their voices heard? Or for the incompetent government to harvest ideas for reform?

I’m beginning to come around to your way of thinking.

It wouldn’t be so bad if they actually used them as a source of ideas. Instead they just use them to create the next spin headline and then carry on as before.

[spivT]

I'm skeptical as to whether the FSA would actually go through with any of the necessary restrictions, but this is what i'd like to see......

90% LTV maximum

x4 income maximum for single applicants.

x3.5 for first income and x1 for second income for joint applicants.

minimum six months payslips and bank statements [or sufficient ecidence if self-employed], plus employment references.

bonuses would be considered in some cases, only if they are regular, provable and other regular payments should also be included so long as they don't take the loan multiple to above x4.5 based on the base salary of the individual.

Let's encourage a bit of saving and prudence before ftb's jump on the housing ladder, and let's get rid of the dual income bias that has priced single income ftb's out.

An example of how my criteria would work out......a ftb earning 28k a year with 90% LTV would be able to borrow up to 112k, meaning the maximum purchase price under these restrictions would be around 124,500 which is a fair price as it means the ftb wouldn't have to pay stamp duty when the govt. returns the threshold to 125k. SO they'd need to find a deposit of around 12,500 pounds to pay that sub 125k property which shouldn't be unreasonable amount to raise for someone with a few years of employment behind them.

that to me is how things should be.

[Guest DissipatedYouthIsValuable]

Dear Government.

Please could I possibly be allowed to live in the country of my birth and allowed to buy a house, just one, of a reasonable size to have a family without being ripped off by pricks left right and centre.

[spivT]

An affordability model for mortgage lending is certainly not required.

that's been one of the biggest culprits, a vague interpretation on 'affordability' as undertaken by the lenders.

[abharrisson]

Agreed, if they were to establish truly prudent lending criteria this would cause a significant fall in house prices – they’re no likely to do that .

So does this mean that there won't be any real change and it's all spin?

I can see the argument for decoupling the rate of interest for mortgage lending from business lending.

I agree that blunt measures are not up to the job, I am just aggrieved that robust policy in this area is completely lacking. If they really want stability, they need to establish and publish at coherent approach to mortgage lending, and then stick to it.

They could also revamp the selling process.

Until they get a grip of this everything they say is spin, and serves only to confuse the market place in a vain attempt to get re-elected.

Yes I would say quite a lot of it is spin.....

[Total_Injustice]

Dear Government.

Please could I possibly be allowed to live in the country of my birth and allowed to buy a house, just one, of a reasonable size to have a family without being ripped off by pricks left right and centre.

This is the absolute point that society- let alone the Government and Banking sector - needs to be reminded of.

[Bloo Loo]

Financial "products" - and I absolutely hate that word, it's mostly just different ways of either taking or paying interest - should be regulated more like they are in the drugs industry.

you mean tested on animals/chavs first?

[piece of paper]

"The chairman of the Financial Services Authority has also hinted that the amount that buyers could borrow as a multiple of income could be controlled in future.

In evidence to the Treasury Select Committee, Lord Turner said: "We can certainly see a strong argument for us getting more involved in product regulation than we have in the past."

The chairman of the FSA wants a bigger empire. Close the FSA down. It doesn't work and there is no need to replace it with anything else.

p-o-p

[Bloo Loo]

"The chairman of the Financial Services Authority has also hinted that the amount that buyers could borrow as a multiple of income could be controlled in future.

In evidence to the Treasury Select Committee, Lord Turner said: "We can certainly see a strong argument for us getting more involved in product regulation than we have in the past."

The chairman of the FSA wants a bigger empire. Close the FSA down. It doesn't work and there is no need to replace it with anything else.

p-o-p

+1... as i learned from injin, the solution for government problems is more government.

[Total_Injustice]

I'm skeptical as to whether the FSA would actually go through with any of the necessary restrictions, but this is what i'd like to see......

90% LTV maximum

x4 income maximum for single applicants.

x3.5 for first income and x1 for second income for joint applicants.

Coming up with some rules or even firm guidelines is not beyond the wit of man. I have come to the conclusion that they just don't want to make such a measurable and accountable statement.

Government and accountability are two words not often seen in the same sentence.

[Fromage Frais]

Its a bit unfair to those with irregular or unprovable incomes, let alone paying for another loads of people to monitor the lot.

Far better is have a minimum deposit say 25% (cleared funds not loans) you cannot stop prices going up and down but it will certainly prevent people buying blocks of houses with nothing and also importantly protect the banking system from itself.

[IMHAL]

+1... as i learned from injin, the solution for government problems is more government.

Agreed - we don't need no stinkin regulators - we just need common sense rules - like max of 3x salary - that ought to sort it.