Proposed Regulation Will Reduce Loan Numbers
Following the problems of the recent past, with high levels of home owner loan arrears and repossessions, due to easily accessible loans from banks and building societies, the Financial Services Authority (FSA) has proposed drastic changes to the way in which home owner loans and mortgages are approved and regulated, which will encourage responsible lending and borrowing in the future.
However, many industry experts believe that the proposals go too far and that if they are implemented, it will have a huge negative impact on the home owner loan market and the ability for borrowers to be accepted for the loan they require.
The Council of Mortgage Lenders (CML) have warned that, although the proposals will reduce the number of loan arrears cases and possible repossessions, many credit worthy borrowers will end up being refused for a loan, if the plans are introduced in their current form.
The CML went on to comment that if the current proposals had already been introduced, almost 4 million people who took out a home owner loan between 2005 and the beginning of 2009, would have been rejected for the loan they now have and on which they are maintaining the loan repayments without any hardship or difficulty.
In its statement, the CML said “We estimate that the cumulative impact of the proposals, if implemented as proposed in the FSA consultation paper and using the FSA methodology, would have resulted in around half of all mortgages over that period not being granted on the basis that they were taken out.”
“If the FSA’s proposals had been in effect from 2005, around 3.8 million “good” loans would potentially not have been granted. While fewer arrears and repossessions would have occurred, this effect would have been modest, compared with the impact on large numbers of creditworthy borrowers.”
