With mortgage regulation ready to roll on 31 October this year, the industry regulator, the Financial Services Authority have started laying the ground rules for mortgage lenders. John Tiner of the FSA told lenders at a recent Building Societies Association annual conference that they needed to tighten up on their lending criteria. He apparently commented that basing a borrower’s affordability on income multiples alone was not enough. He said: “gross income on its own is a very poor guide to affordability”.
Our View
The FSA are no doubt showing their teeth in plenty of time for regulation. They want lenders to look at the overall picture for borrowers and not just whether their income multiple criteria says a mortgage is affordable.
With interest rate movements very uncertain, at least for the foreseeable future, we do believe that lending on income alone is not a good judge of whether the borrower will be able to afford their mortgage over the long term. As well as rates changing, so do personal and employment circumstances.