Mortgages: if it wasn’t hard enough already…

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Following the 2008 financial crisis, the Financial Conduct Authority (FCA) took a detailed look at the mortgage market with a view to address what has been seen in the past as irresponsible lending practices. As a result, on the 26th May individuals in the UK get a mortgage changed and new rules introduced by the FCA have now come into effect.

Going forward, lenders of residential mortgages will have to demonstrate that they have taken appropriate steps to ensure the borrower can afford the mortgage not just at the time of application but also if interest rates were to go up in the future. There will also be much more focus on the individuals expenditure as well as income and more supporting evidence will now be required. As a result, mortgage applications are going to take longer and any potential interest rate rises would be negatively correlated with the amount of money. It would be interesting to see if the amount of mortgage applications spike up this month to avoid the impending regulations – I would assume so. What surprises me is why wasn’t this introduced earlier? A major contributor of the crisis back in 08 was the greed of mortgage brokers who were arranging sub-prime mortgages for any Tom or Jerry who could barely afford their mortgages at the time and became screwed when rates rose. This change in my opinion comes a few years later than it should. It will also be interesting to monitor the next quarter how the number of mortgage applications is affected, and whether there is a spike in the amount of joint mortgages obtained in the UK (whether that figure is available is another issue). I would expect to definitely see an increase due to additional checks which will be implemented making it even harder to obtain a mortgage. As if it wasn’t hard enough already!

What effect may this have on property prices you may wonder? I believe it won’t. There will be many individuals who may now become priced out of buying in a very over saturated market, but prices will continue to rise as overseas investment in UK properties continues to pick up. How does that affect you and I? Well the stringency in the long term would be beneficial to us as the unfortunate scenario of property repossession is taken into account, however in the short term it is a pain. Future income (fixed and/or variable) is hard to predict; so over cautious mortgage lenders may affect the chances of an individual stepping on the property ladder.

Watch this space.

@capitalmoments

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