Morning Line: New rules will create millions of mortgage prisoners

"Millions of interest-only loans were advanced between 2000 and 2007 as house prices rose and an interest-only mortgage was the only way some homebuyers could afford the high income multiple mortgage necessary to be able to buy their home."

I'm sorry, what? An interest only mortgage doesn't enable anyone to buy a home - unless they also have some form of repayment vehicle. How many people on interest only mortgages genuinely have said vehicles in place?

I'd be interested to find out...

Self Certified mortgages were not just a creature of the boom years they were offered to the self-employed as often the only way to get a mortgage if you were self-employed and could not evidence 5 years of increasing profits. I have had one since 1993 and would not have been able to stay in my house had they not been available. Sadly, the FSA seems yet again to have misunderstood the market!

FSA behind the game as usual! Seems Turner is as out of touch with what's needed as the FSA has been since its set up in 97. Banks have toughened up on lending - dont need overkill creating wholly unnecessary suffering. Useful article Lorna.

I don't have a problem with income verification, but the interest only restrictions are perverse.

Are we going to stop people renting a home unless they can prove they could afford to buy one if they needed to??

Am I alone in thinking that the proposals are nothing but good news? I cannot see why banks should or even have ever been willing to grant a mortgage to anyone who cannot show they are able to service the loan. It is a basic duty of the bank to ensure that the loan will be serviced.

Most of the problems in the financial markets stem from the fact that too many liar loans were granted.

Asking those who wish to borrow to show they can meet monthly payments is sensible. Everyone should be able to display some sort of proof of income, unless, of course, they choose to be paid in cash, presumably to evade tax. Well, if they choose to not contribute fully in the society they operate, they need to expect some sort of downside to that, such as not being able to borrow fully at market rates, or at all.

I think this is a long-overdue rule and one that should nevery have been necessary if the FSA had done it's job properly and banned self-certs as soon as they materialised.

"Today, in spite of what is being called ‘irresponsible’ lending because of the large number of interest only advances and ‘income not verified’ loans, repossessions are around 40,000 a year."

This is easily explained; BoE base rate is 0.50%. Any home owner/speculator should be able to keep up mortgage payments when interest rates are effectively near zero, hence no increase in repossessions.

The question is, can the home owners/speculators still afford payments when rates move back up by even 2%? Probably not because they committed "fraud" by lying about their income to ride the wave of increasing house price rises.

I agree, most mortgage defaults are employment related. I have a Self Cert mortgage and now fear that i will be trapped as the article suggests. The bottom line will be less folk moving, therefore, house prices will remain high as a result of this FSA ruling. The future looks bleak, particually for first time buyers and downsizers like myself.

Is anyone mad enough to take a mortgage they cannot service after all the coverage of the problems this causes?

Is anyone mad enough to do that after it has been proven that house prices can fall as well as go up?

The lenders lent without any responsibility, so fuelling the boom;

I cannot see that happening again for at least 10 years: in fact a little bit of "boom" in house prices is what the economy desperately needs.

As for the FSA:

http://www.cbba.co.uk/APPG.html

One of the last governments BIGGEST mistakes.

"Nobody wants lenders to be irresponsible and grant mortgages to homebuyers who can’t afford to pay back the loan." ... Enough said.

If you can't service a repayment mortgage at current rates when you obtained your 'interest only 'loan when rates were much higher then you are in trouble and who could blame lenders from not wanting to refinance you.

Stupid article which completely misses the point that these mortgages helped inflate the bubble. Those trapped will only be those who took out the ridiculous mortgages in the first place - why are thes epeople always portrayed as victims?

Self certers can provide tax returns to confirm income if need be, if these show they make no profits (to avoid tax) then they will just have to rent.

All the new rules will mean is that first time buyers will have to save a deposit and only purchase property at a level that they can afford to repay. If prices have to come down then so be it.

I assume the author is worried about her B2L portfolio again?

FSA = fools stupidity agency.

There is a sizeable section of the population that is self-employed and therefore reliant on self certification mortgages.

A few abused the process, about the negligence was on the part of the banks failing to do proper due diligence.

Many of those who self certified and were in reality employed and use the self certification route to get a far larger mortgage than they could comfortably/properly manage. The bank should have ascertained whether they were self-employed (accounts over a number of years) or employed. If employed, self certification should have been denied.

Better that there be tighter rules in relation to self certification.

As previously stated, in 1987, starting on my own after a number of years in partnership, I had no accounts or track record, except a solid repayment record in relation to the mortgage I did have. I got the mortgage double the size I had before, and 13 years later repaid in full, without any default (when the interest rate went down, I fact increased my payments, and they're very rapidly made a big hole in the amount that I had borrowed, in a matter of years more than halving the amount borrowed).

The problem with the FSA is that it is staffed by people who are sucking at the teat, never having had to make it in the cold real world by the effort of their labours. Just how many of them would be able to make a living yielding anything close to what they are being paid for polishing seats with their rear ends? They do not even know how to apply rules well-established when there is a dispute with one of their providers, brokers.

Is there any other way? How can lenders be expected to lend against no guarantee of ability to pay. Let's get into the real world again......please.

Can't but help but agree with Morpheus and Anon 1. The author appears to twist facts to support her argument.

Of course there are less defaults this time round as against the 90's when interest rates rose to 15% and lenders had no restrictions on when and how they took action. If the same conditions existed now this current 40,000 would exceed a million.

It is the savers and future taxpayers that will pay the cost and subsidise the the current "defaulters" . Why should it continue and why shouldn't some action be taken to prevent it continuing??

The rules have to be made so that the prudent don't have to keep bailing out the wreckless. Limits shoulb be placed on multiples borrowed and factor in Job security or an insurance product to cover unemployment. This way the banks can be sure they will be paid and there margins can be reduced. This will partly pay the insurance and then we would have houses which people can afford in good times and bad

Why does anyone take any notice of the FSA when it is going to be abolished?

And if large numbers of people are going to be trapped into renting by the idiotic process of clamping down on borrowing far too late and in the middle of the worst recession for 300 years...well that is good for landlords.