Mortgage Market Review by the FSA – Right track, wrong time.
Hey guys,
I have been spending the night reading through the 109 pages of the Mortgage Market Review. It’s an interesting report that I feel is well and truly heading down the right track but at the well and truly wrong time.
Let me firstly explain why I think the report is ill-conceived and poorly timed, in fact the Council of Mortgage Lenders (CML) feels the same way as me. Right now the market is recovering, it’s sitting on a delicate balance between a slow and drawn out recovery and heading back into recession. So the last thing we want right now (or in the next year) is any form of regulation.
Now some will say that this regulation is necessary to correct the imbalance but really the banks have already corrected the imbalance so its not necessary right now. The one thing I don’t like about the FSA is that by their very nature they are a regulator so they are just doing their job and trying to avoid what has happened.
So the summary of the report and how it might affect our investors.
Banning all Self-Certification Mortgages
If you have applied to these in the past it might be worth considering how you could remortgage these as you will have to verify your income once this is implemented. This is particularly important if you are relying on accessing equity in your home to cash flow your properties. Especially if interest rates rise.
They are not suggesting putting a cap on loan-to-values
I actually don’t think this was ever going to happen as realistically being in negative equity is never an issue. The reason they have targeted the Self certification mortgages is because this affects cash flow.
Prohibiting loans to multiple high risk characteristics
A high loan to value in itself is not enough, but add in a high risk group (such as low or unstable income, high levels of consumer debt, credit impaired) then you might have problems. My advice is to start paying down consumer debt as much as possible (start with credit cards, then unsecured personal loans, then secured personal loans).
Regulating Buy-to-Let mortgages
They are suggesting that all Buy-to-Let mortgages be regulated under the FSA. This will of course create more costs and the people who will pay for this will of course be investors.
Using Affordability Models to assess suitability
Whilst not giving an actual formula they have suggested the following factors in assessing it – Income Tax, Secured loans, Unsecured loans, Council Tax, Utility Bills, other household bills, child costs, regional variations, LTV ratios, credit score, stressed rates are all factors they may consider.
Low Income Earners should prepare now
I think that this is an area that will definitely change. Low income earners are likely to struggle to get a mortgage or remortgage. When I talk about low income earners we are talking under £25,000 individual or £35,000 combined.
I will make a more detailed presentation about the report once I have read through the entire thing.
If you have any questions the team will be trained up on the review for next week, just give them a call on 0207 812 1255.
Live with passion,
Brett Alegre-Wood
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