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Fsa On The Mmr

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"it is now clear that there will be a new European initiative. We're waiting for details of the measure to be confirmed. However, it follows a great deal of discussion and debate around the case for intervention, especially to promote more responsible lending and borrowing, a debate with which we been closely involved."

Hopefully this european initiative being led by Axel Weber at the Bundesbank...

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Plenty of great quotes


House prices trebled in the period 1997 to 2007, massively outstripping the rise in average incomes and making home ownership less affordable for first-time buyers. Currently, an average house is worth around five times the income of an average borrower.

I think we would all agree that there needs to be a return to a more healthy correlation between house prices and average incomes. But, of course, that then raises the question about existing borrowers who may find themselves in negative equity or less able to move up the property ladder or less willing to spend, with all the knock-on effects of that on the wider economy. It would mean, on the other hand, that first-time buyers have a realistic opportunity of getting themselves their own homes. But on the conduct side, we are primarily concerned about consumer protection rather than financial stability issues. And the impact on house prices had a very significant impact on borrower and lender behaviour. Borrowers had to overstretch themselves to buy their house and we saw relaxed lending criteria and increased risk taking on the part of lenders.

Our analysis estimates that almost half of UK households (46%) were financially stretched at the time of the origination of their mortgage. Rates have reduced since then, of course, and so things will have eased for most. But in our view, the explosion in credit left a significant tail of overstretch amongst borrowers – we estimate almost 16% – which is in line with research published by the housing and homelessness charity, Shelter, last year which highlighted a big surge in consumers struggling to pay their mortgage. They estimated around 18% of borrowers were in difficulty – equivalent to three million mortgage holders, compared with just 10% a year before. Then the crash came and we saw a sharp reversal of risk appetite. Lending at the level seen in 2007 was shown to be unsustainable. As we all know, the fall away has been dramatic.

There are currently 350,000 borrowers in arrears and 54,000 homes were repossessed in 2009.

We have also finalised our proposals for an Approved Persons regime for the mortgage market, which will be introduced in 2012/2013. That will help raise standards across the lending industry generally.

Interest-only is a hot topic for debate – even though we haven’t yet consulted on our final proposals. We have given the market a lot of opportunity to give us their views – and there is a general recognition, I think, that this is a genuinely difficult issue to bottom out. There is no consensus of opinion on this. How are we to facilitate the sensible borrowing decision as opposed to the not-so-sensible decision to overstretch? And to what extent is it right to protect some through measures that may unnecessarily constrain those who have a lesser need for protection?

And the self-employed has proved another hot topic. We have said that everyone should be in a position to prove their income and therefore that the self-employed should continue to get mortgages just as they do today. We appreciate that firms have to make difficult judgements when income is irregular or uncertain – something they have always done. We are not proposing to stop risks being taken – we just want the risks to be properly thought through and understood.

Edited by koala_bear

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We have covered a lot of ground in the past year. But this is all a culmination of a review which we’ve been undertaking for some time. We started reviewing the effectiveness of the regime in 2005 and through our reviews and our supervisory thematic work, we’ve learned a lot about the market and what’s working and what’s not working.

Five years of sitting on their hands doing nothing so bankers who are their ex-colleagues, can create a credit bubble to help themselves to bonuses based on fictitious profits.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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