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FSA faces opposition to ban on 100% mortgages 24 March 2010
James Charles (about the author)

The City watchdog has met with opposition to its proposals to ban riskier "100 per cent mortgages" which require borrowers to put down little or none of their own equity.

In a statement on the feedback received to its Mortgage Market Review, the Financial Services Authority (FSA) has acknowledged that there is little support for the introduction of a ban on higher loan-to-value mortgages or restrictions on the amount customers can borrow as a multiple of their income.

Prime Minister Gordon Brown had suggested that there should be a ban on 100 per cent mortgages which require no deposit.

There was also a "polarised" response to its proposals to ban controversial self-cert deals, dubbed "liars loans" because borrowers are not required to provide proof of their income.

The FSA has proposed that lenders should be required to check the income of all mortgage applicants, a plan which has been supported by consumer groups.

Self employed penalised

However, the FSA said that larger banks have protested, arguing that it will unfairly penalise the self-employed, who are not able to provide proof of regular income from an employer.

Steven Jackson of beatmydebt.com believes a sensible approach is required. "Clearly we do not want to return to a world of rash lending decisions and 125% mortgages. However, to automatically turn down people who can not prove their income with wage slips would be irrational" he said.

The banks have also insisted that low risk applications, such as those from existing customers, should not have to go through the process of verifying income.

A number of lenders, including Northern Rock, the state-owned bank, continue to "fast track" certain low risk borrowers, approving a loan application without requiring a proof of income. In 2007, more than 45 per cent of all loans were approved without a check on a borrower's income, according to the FSA.

The Mortgage Market Review set out proposals to reform the UK market for home loans in October last year. It was a response to a range of perceived problems which had emerged during the credit crunch. For example, controversial deals such as 125 per cent loan-to-value mortgages, have left thousands of first-time buyers in negative equity.

There have been 178 responses to the review from a range of organisations including mortgage lenders, trade bodies, consumer groups and Government departments and the FSA will publish policy proposals later this year.

The FSA has already issued a consultation paper on the reform of rules regarding borrowers in arrears, including a ban of mortgage arrears charges where borrowers have established a repayment plan. It said in a statement today that it plans to provide policy proposals in June.

Source: Times Online