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How changes in the mortgage market could change your life

Oct 29, 2010

Mortgage Market Review.

Remember those three little words as they are going to change all of our lives forever. Your lives. Your children’s lives and your grandchildren’s lives.

We all know what happened back in 2007 and the start of the credit crunch that has restricted access to lending in a reaction to the over-liberal lending of previous years. Behind the scenes the Financial Services Authority, the City regulator, has been consulting with mortgage lenders and professionals about how to stop some of the crazy lending that had been going on pre-2007 from ever happening again.

But not content with allowing a free market to correct itself, the FSA has gone one step further and what it is proposing at the moment will leave an entire generation without the means to get a mortgage at all. And that will have severe ramifications for the rest of us.

The FSA’s Mortgage Market Review is the regulator’s proposed vaccine for the market but unlike the doctor’s Measles Mumps and Rubella jab, this is one shot in the arm that is going to have a strong adverse effect.

The MMR is all about affordability, in other words, whether you can afford to take on the loan. The FSA wants to put an end to, for example, mortgages that are high loan-to-value, interest-only, self-cert (where borrowers self-certify their own income) as well as fast track deals, where lenders can fast-track an application through their processing because there’s either a large amount of equity already in the property or a hefty deposit of, say, 40%.

Just taking these issues (there are many, many more) the consequences are immense. More than 11 million borrowers will be affected by the MMR in one way or another. The fallout of this regulation, if it is implemented in its current form, will see rafts of borrowers unable to remortgage off their existing self-cert and fast-track deals because they do not have the required proof of income.

Imagine that you have an existing self-cert or fast-track deal at your lender’s Standard Variable Rate (SVR). While interest rates are low your monthly payments are probably affordable. But once rates start to rise, and they will, you are going to be trapped as the lender will not be able to move you onto a better deal as a result of these new regulations.

Regulation can be a good thing. But the unintended consequences of this MMR jab are likely to stifle both innovation for lenders and opportunity for borrowers, potentially leaving hundreds of thousands without the ability to stay in their home or buy another.

Now you might be thinking that this is no bad thing; that it’s about time some of the lending practices of the past should be banned.

But just think about this for a moment. Without a viable alternative, the knock-on effect throughout the housing market and indeed the economy is going to be horrific.

Thinking of selling your home? It’s quite possible that you won’t be able to sell the property in the first place. Housing acts in a chain of events. First-time buyers will be thin on the ground as the need for higher deposits continues and interest-only is banned.

Without a first-time buyer you can’t have a first-time seller; no first-time sellers mean no second-time buyers and no third-time sellers. Think rental accommodation will provide the answer? Think again. Buy-to-let funding is hard to come by and banning interest-only deals will make it impossible for some investors to continue investing in property. Rents will rise dramatically too. As more and more would-be homeowners are denied access to the property market the demand for good rental accommodation will shoot up, and with it rents.

What soon comes into play is a nightmare scenario that will keep you awake at night, your children awake at night and your grandchildren awake at night for years to come.

The good news is that the MMR hasn’t happened yet. But it more than likely will and it won’t be long before the grim reaper comes knocking at the door. Prepare for the worst.

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9 Responses to “How changes in the mortgage market could change your life”

  1. jackie Says:
    Nov 16, 2010 at 1:09 pm

    hi i have just read your comments i lived through the last recession and was really worried when this one stated and we needed to re-mortgage due to the old one finishing i took a mortgage over 10 years at 5.59% and have been upset ever since as the mortgage rates fell i am now asking perhaps i have done the right thing having read your comments

  2. J Slatter Says:
    Nov 1, 2010 at 8:13 am

    “Thinking of selling your home? It’s quite possible that you won’t be able to sell the property in the first place. Housing acts in a chain of events. First-time buyers will be thin on the ground as the need for higher deposits continues and interest-only is banned.”

    Whats to say that house prices don’t start to come down because of this, therefore allowing first time buyers not needing so much in the first place, and hence the market place for housing could start to become affordable once again. We may even find that what you can buy is affordable in relation to your salary/income as it was almost possible a couple of decades ago.

  3. Richard Marsh Says:
    Nov 1, 2010 at 10:11 am

    Self certs and mortgages for the self employed without three years of accounts are non existent now anyway. Great news if like me you decide to make a go of it alone following redundancy and suddenly find you are trapped in your home unable to move anywhere or re-mortgage.

    These busy bodies in the FSA seem to forget that it was not us in the UK that caused the credit crunch but overstretched US citizens duped into buying houses with low start up mortgage rates and greedy financial institutions selling on the debt and trying to make money from the interest that debt attracted. When the loans defaulted and the whole thing collapsed we had the credit crunch. Over here we had one or two reckless lenders prepared to lend 125% mortgages (Northern Rock) but that’s it.

    So why does the FSA feel the need to impose these strict lending criteria at all? The problem we have now is the banks are sitting on their back sides and not lending to us as they are trying to build up cash reserves. Consequently we have a lame housing market and record renting as people clammer to get a home. (While rental mortgages are equally few and far between with large set up fees, large exit fees and huge differences between the bank rate of 0.5 % and the rates they charge us).

    The government needs to put pressure on the banks to get them lending and get it moving again. I’m not talking about getting house prices to rise but to make it easier for people to get finance to buy.

    Lets see the end to a situation where if you have a £12 late payment fee on your credit card because you left the statement in the draw suddenly you are not worthy of getting a mortgage.

    Otherwise the Soup kitchens will be very busy in months to come.

    R Marsh

  4. Keith Horton Says:
    Nov 1, 2010 at 1:06 pm

    Good articles. But why not set up and internet petition on the website and send the emails to the relevent “bodies”

  5. L Farley Says:
    Nov 1, 2010 at 5:20 pm

    Seems to me that this is all designed to put the money back into the hands of those who feel they should have it anyway. If I can’t get my int only mortgage renewed then I guess I’ll loose my house and as others will be in the same situation the price of property will come down. In jump the cash to spare buyers who then rent my house to someone with nowhere to live for a higher rent than they should have to spend on a mortgage! No good for the country, no good for ordinary people (Especially without housing benefit ) but brilliant for the rich and comfortable. Am I being cynical, I doubt it.

  6. L Deehan Says:
    Nov 1, 2010 at 5:26 pm

    Let’s just get on with life and what is important,family and friend’s and your health, which is a person’s real wealth.

  7. Deejay Says:
    Nov 2, 2010 at 8:42 am

    As L Deehan says, family and friends and good health are the important things in life but all these could suffer if you can’t put or maintain a roof over your and their heads. Stress caused by financial worries is a real threat to health too.

    It does seem that Richard Marsh has hit the nail on the head and the ordinary law-abiding rule-following mortals are to be penalised for the recklessness of the banking/financial industry (who continue to get their big payouts and bonuses).

    Yes, I know it’s not that simplistic but I think there’s a danger that, by making mortgages unattainable and/or unaffordable to the masses, they will undoubtedly trigger a slump that will be difficult to recover from.

    Get back to basics!!!

  8. natasha Says:
    Nov 2, 2010 at 11:15 am

    We put our house on the Market on Sept 4th and excepted an offer a week later which totally amazed us in this current climate, used an online estate agent also so fees were alot less.We couldnt rent our house out as the mortgage was too high and our lender wouldnt give us a decent remortgage offer that was the same or less, just a lot higher!! We have forecast this time ahead and saw the stuggle we were getting ourselves into so we are getting out of here to move to Australia. This country has made it hard for home owners struggling to cope with their home and offers nothing for those who want to get on the ladder. There are better prospects for us in Australia, jobs etc, and they help you to own a home by giving you a grant to join the housing market, prehaps our goverment need to look at how things work over there. Oz didnt get hit by the ressesion either as the goverment gave ever individual living there $900 to spend and put back into the economy… differnt world altogether. This was our first home and I know we will never be able to buy again in this country, but the banks, once giving you a mortgage made it so hard for us to keep it, we are getting out whilst we can.

  9. j.fletcher Says:
    Nov 4, 2010 at 9:46 am

    It seems to me that the FSA are covering their on backside for their failings in all of this,and now going overboard introducing these damaging ideas,When really what the FSA should have done was to monitor this situation over three years ago and put the brakes on the lending market,who regulates the FSA????

  10. V.Stuart Says:
    Nov 4, 2010 at 1:21 pm

    We put our house on the market a few weeks ago, got a couple of offers below asking price but eventually accepted an offer and are going through the process of selling. Our income dropped radically over the last few years and to say we are struggling is an understatement.We had an interest only mortgage in order to buy a property in a good school catchment area. The mortgage company once we got into arrears due to periods of unemployment, let us continue the arrears but would not agree to extending the terms of the mortgage, adding the arrears onto the end or giving us a better deal despite having over £100k in equity. We have no option but to sell and will not be able to secure another mortgage deal due to our credit history, we have no option but to sell rent and then see how the next few months or even years go. Australia is not an option maybe somewhere else? But the UK is for the very rich or those on benefits ? those in the middle dont seem to count, despite working all your life….

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