Lenders will impose tougher tests on borrowers to ensure they can make their repayments, the Financial Services Authority is to announce on Monday.
During the property boom the so-called “liar loans”, where banks and building societies fail to make independent checks on a customer’s income, were at the centre of widespread fraud.
Some mortgage brokers encouraged home buyers to make false declarations about their income to borrow more money, boosting property prices. Many borrowers, however, were unable to meet monthly repayments when interest rates rose, leading to arrears and repossessions.
However, the new rules will be relaxed for existing borrowers to ensure they do not become “mortgage prisoners” trapped in negative equity.
Hundreds of thousands of people are unable to move to a new home because of falls in the value of their properties. Banks will be allowed to approve loans for trapped home owners even when their loans amount to a high proportion of their property’s value.
David Hollingworth, a mortgage broker at London & County, said the relaxation of the rules for existing borrowers would help them get better deals. He said: “These people may be keeping up with mortgage payments fine, but end up getting a raw deal if they can’t move.”
In July 2007, before the credit crunch, one in four residential mortgage products – about 860 – was available through self-certification. That has been reduced to almost none. Mr Hollingworth said the mortgages were “effectively dead already, and the FSA is just nailing the lid shut”. Details of the City watchdog’s recommendations came as Lloyds TSB warned that home owners hoping to take their place on the second step of the property ladder face a “very tough challenge”.
Following falls in house prices, this year will have had the lowest number of annual house moves since 1974, with a nine per cent fall on 2010.
Potential second steppers who bought their first home at the peak of the market in 2007, paid up to 23 per cent more than first-time buyers do now.
More than half of all new mortgages taken out between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.
At the peak of the market 30 per cent of all loans were interest-only – with no requirement in many cases for the customer to have a plan in place for repaying the amount at the end of the term.
Ray Boulger, of the mortgage broker John Charcol, said he believed the proposals would scrap the “onerous” original plans laid out by the FSA. “It is clear this was a genuine consultation exercise, contrary to some government so-called consultations,” he said.
In July 2007, before the credit crunch, one in four residential mortgage products – about 860 – was available through self-certification. That has been reduced to almost none. Mr Hollingworth said the mortgages were “effectively dead already, and the FSA is just nailing the lid shut”. Details of the City watchdog’s recommendations came as Lloyds TSB warned that home owners hoping to take their place on the second step of the property ladder face a “very tough challenge”.
Following falls in house prices, this year will have had the lowest number of annual house moves since 1974, with a nine per cent fall on 2010.
Potential second steppers who bought their first home at the peak of the market in 2007, paid up to 23 per cent more than first-time buyers do now.
More than half of all new mortgages taken out between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.
At the peak of the market 30 per cent of all loans were interest-only – with no requirement in many cases for the customer to have a plan in place for repaying the amount at the end of the term.
Ray Boulger, of the mortgage broker John Charcol, said he believed the proposals would scrap the “onerous” original plans laid out by the FSA. “It is clear this was a genuine consultation exercise, contrary to some government so-called consultations,” he said.
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