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CML warns on over regulation of mortgages

CML warns on over regulation of mortgages

Category: Mortgages

Updated: 05/10/2010
First Published: 05/10/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Many viable borrowers would be turned down for a mortgage under plans from the Financial Services Authority (FSA), the Council of Mortgage Lenders (CML) has claimed.

Under the Mortgage Market Review (MMR) proposals, criteria for being accepted for a mortgage would be far more stringent.

Some of the proposals include the introduction of stricter affordability limits, the banning of self cert mortgages and individuals with impaired credit histories being subject to harsher tests.

However, the CML believes that if all of the proposals had been in place from the second quarter of 2005 to the first quarter of 2009, around half of the home loans that was approved would have been affected.

In real terms, this would have equated to four million mortgage applications being rejected.

However, figures show that just 151,000 arrears cases would have been avoided, as well as 38,000 repossessions.

That leaves 3.8 million good loans that would have been rejected.

"We believe the current proposals sacrifice too many borrowers, and do not chime with our recent research on levels of consumer aspiration to become home-owners in the future," said the CML.

The organisation's research also concluded that the MMR would have a sizeable impact on the first time buyer market.

"We find that only 5% of first-time buyers that would have been affected had any recorded payment problems," it said

"In effect, this means that around 730,000 first-time buyers over the period between the second quarter of 2005 and the first quarter of 2009 – 95% of the first-time buyers who would have been denied their mortgage under the rules as proposed - experienced no payment difficulties."

However, the FSA has come out in support for the proposals, saying that low interest rates have helped prop up many home owners that could otherwise have fallen into problems.

"Our evidence shows that 16% of borrowers are already financially overstretched and they are facing problems now as a result of their lenders' practices in the past, not the MMR," said the regulator

"But for now borrowers are also benefiting from historically low interest rates and house price inflation - which cannot go on forever. This is why it is imperative that we take steps to protect vulnerable consumers and ensure lenders are making responsible decisions.

"We will continue to work with industry and consumers to establish a strong mortgage market where those who can afford mortgages are able to get them."

"It is in the interests of all that we get this right: both lenders and borrowers suffer from irresponsible lending."

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