The Council of Mortgage Lenders is calling on the FSA to water down plans to restrict mortgage lending, saying they are flawed and impractical.
The Financial Services Authority has said it wants to stamp out irresponsible lending and give borrowers protection from taking out a mortgage they cannot afford, only to find they face repossession later.
There has been a row brewing between the two organisations for over a year since the FSA first suggested banning self-certified lending. In July, the FSA began consulting on further plans, which the CML believes will severely, and unnecessarily, hinder an upturn in contractor mortgage lending. Michael Coogan, the director general of the CML, now wants the FSA to redraft its rules.
The Council commissioned research which showed a lot of evidence that there would be negative, unintended outcomes if the proposed legislation goes ahead, Coogan said. The FSA has fought back by accusing the mortgage lending institutions of major failures leading to unaffordable borrowing in the years leading up to the recession.
Under the current draft FSA proposals, lenders will need to verify the income of applicants and assess whether or not they can repay the full capital and interest based on their income and expenditure. They will also be required to restrict the amount they lend to people who have had repayment problems in the past and take into consideration the fact that interest rates could rise when assessing if a borrower can afford to repay the debt. The CML has complained that if these stringent rules are applied, house prices will drop.
There are currently 350,000 borrowers with mortgage arrears and in 2009, 54,000 homes were repossessed. The FSA points out that 46% of households in the UK are struggling to make ends meet after paying their mortgage and other essential outgoings. Even if interest rates only rose by a small amount, there could be a significant rise in the amount of families in financial distress.
It is therefore imperative that lenders act responsibly and do not put homeowners in a position where they run the potential risk of losing their home, the FSA added.
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