New Mortgage Rules for 2014
The Financial Services Authority has announced new rules for mortgage lending that will come into effect in April 2014.
These new rules include placing greater emphasis on checking that the borrower can afford to repay the mortgage, and this will be upper most in the new rules! Interest only mortgages will still be allowed but the borrower must demonstrate that they have a way of settling this mortgage at the end of the term. Simply relying on house prices increasing, then selling and downsizing will not be acceptable.
Some people might argue that there was not much wrong with the old system. However repossessions could well have been significantly greater if interest rates had not been so low and lenders had not shown any willingness to help people who were struggling to meet their commitments. In reality however, most mortgage lenders are all ready adopting the new approach to lending so we are unlikely to see much more dramatic change.
Of concern is the very large number of people who are currently on interest only mortgages and who do not have the funds to pay off their debt. In addition if they want to move or downsize because of their age they may not qualify for a new mortgage. Many of these people may have no other option than to consider the rental sector.
I believe that there is a threat of more expensive houses coming on the market for which there are no buyers. Potential buyers who previously self certified their income will not qualify and others who want interest only will not fit the lenders criteria. As a result it is highly likely that there could be further drop in house prices for properties in the higher price sector. Indeed lower and medium priced property values are being helped due to the demand for them by property investors where high rental incomes can be earned. Larger value properties do not achieve the return on investment that smaller value properties seem to achieve. Therefore investors rather buy several smaller properties with their money and of course buy to let mortgages, than a single larger property.