‘Common sense’ to prevail over mortgage lending

Posted on 25/04/2014 by


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‘Only borrow what you can afford to pay back’. That seems obvious enough now, but during the property boom the sky was the limit and credit was easy – with disastrous consequences. Lessons have been learned, and new rules come into force tomorrow (26 April) to protect borrowers and ensure a ‘common sense approach’ is taken for every lending decision.  

The rules – known as the Mortgage Market Review (MMR) – were drawn up by the Financial Conduct Authority (FCA) as a result of the recent financial crisis and are designed to protect consumers from the kind of reckless mortgage lending that would leave them unable to make repayments.

To ensure that people only get a mortgage they can afford, and to prevent a recurrence of the irresponsible lending practices of the recent past, every borrower will now have to prove that they can afford the repayments both now and in the future. The new scheme will include a new affordability check that will see applicants interviewed by a lender and asked about their income and outgoings.

The FCA has produced a short guide that explains the changes, and around half a million copies will be given out to prospective borrowers in branches of high street lenders, mortgage advisers and estate agents.

Martin Wheatley, the FCA’s chief executive, said: “In the past too many people got a mortgage by simply telling their lender they would have no problem repaying their debt, and that was that. Getting a mortgage can be one of the biggest financial decisions people will ever make, so it needs careful consideration. Our new rules will hard-wire common sense into mortgage lending, and the guide we have created will help explain those changes to borrowers.”

The mortgage industry has been busy getting ready for the changes for about 18 months and many firms are using the new approach already, so some borrowers will not notice the difference.

The FCA has also updated its consumer information pages on its website, at: http://www.fca.org.uk