It looks as if the Financial Services Authority is going to find that its plan for capping mortgage loans is going to meet with some fierce resistance from mortgage lenders who are already mounting a campaign against its proposals under The Turner Review.
The FSA have said that they will look at capping loan to income values at 3, in other words the maximum you can borrow is 3 times your annual salary. The idea behind this is to stop irresponsible lending which they feel is a major cause of the present recession and the resultant explosion of people experiencing debt problems. Mortgage lenders respond by saying that it was the sub-prime mortgages and falling property prices in the USA that triggered the recession, not mortgage lending in the UK.
Paula John, Editor-in-Chief of ‘Mortgage Solutions’, does come up with quite a logical answer to the proposals when she points out that the average annual salary is under £30,000. What this means is that, under the FSA proposals, we would be looking at an average maximum loan of under £90,000 whereas the average house price is £160,000! It goes without saying that first time buyers would be virtually frozen out of the market. Ms John also points out that when the maximum three times loan to income calculation was the norm, many years ago, interest rates were much higher, peaking at 18%, whereas now the interest rate is around 5% and therefore repayments are more affordable. This is also pertinent as far as capping loan to value percentages is concerned.
I am all for regulation that is in the best interests of the consumer but I sometimes wonder whether we are experiencing regulation for regulation’s sake, a self perpetuating monster that very much runs the risk of losing touch with reality!
