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Is This The Final Blow For Uk Property?

Posted on October 5, 2010 by editor
Posted in Economy News, UK Property Market Comment Tagged , , , , , , ,

final blow for Uk propertyNow that we have reached the month where we start to find out what spending cuts etc are to be implemented by the govt, I have been watching and reading a lot of news and independent views to see what the consensus of opinion is.

Sliding in under the mat somewhat, are the new rules that the FSA want to impose on mortgages regarding affordability testing. Basically it means this:

The FSA want to make lenders ultimately responsible for assessing the borrower’s ability to pay back the mortgage. So, for EVERY case the lender would need to verify a borrower’s income to prevent over inflation of income and mortgage fraud.

The Research

This one item was based on some research which concluded that:

  1. 46% of borrowers had a shortfall after mortgage payments and living costs were deducted from their income or indeed had no money left at all.
  2. Nearly 50% of new mortgages from 2007 to early 2010 were given without the borrower needing to verify their income.
  3. Interest-only mortgages increased by over 30% at the peak, with many borrowers having no repayment vehicle in place.

These are the loans that the media have dubbed “liar loans”. However, there is a valid case in my opinion for there to be some form of self cert. A complete ban is not the answer. Most businesses are run with some form of credit and these types of  ‘one size fits all’ measures never work well in practice. It could cause a huge grinding to a halt of the mortgage market as banks insist on more and more bits of verification for every deal. It will make the whole process very labour intensive, and likely result in even more case being rejected.

In the long run all this does is discriminate against those who choose to be entrepreneurial and take the risks of having a business, only to find that they will be refused a mortgage because they took the risk to have a business in the first place. Further, the CML claims that:

If the proposed new rules had been in place from 2005 to 2009, around half of all mortgages would not have been granted, with the loss of 3.8 million loans that would have otherwise been sound.

liar loans uk propertyThe consultation period on the proposals above closes on 16th November so we shall all find out soon enough if these draconian measures will be implemented. Personally I hope they see sense and come to some sort of compromise to allow business folk ( who the government are at pains to encourage for the sake of the economy) to get some form of dispensation.

Estate agents are already reporting that the length of time it takes to get a mortgage approved has gone up dramatically.

It means a return to 3+ months as a minimum to get deals wrapped up, and that’s without the possibilities of a chain situation.  What tends to happen is that buyers will drop out and the next one in line senses a bargain to be had driving prices downwards. It’s difficult to see how this will not damage an already very fragile market.

What do you think? We welcome your comments, I am always happy to be challenged if you think Im wrong. Here is the PDF download from the FSA explaining in detail the proposals: http://www.fsa.gov.uk/smallfirms/pdf/MMR_guide.pdf. Many thanks to Stephen Wrigley for pointing me to it.


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  • http://twitter.com/GorgeousHomes Gorgeous Homes

    To be honest the press are so negative I just don't follow any more – plus the stats are so generic. Anecdotally I am continually surprised to hear some of the deposits that first time buyers have in their accounts (we're talking 40-50k upwards) and the number of people who have over 100k cash at their disposal.

    • http://www.mypropertymentor.co.uk/ Roberta Ward

      hmm maybe its a remenant from the days when folks could remortgage easily- or more people have money tucked aside in London areas perhaps? Interesting tho eh?

  • Danny

    Great article Roberta, no challenges from me! :-)

  • http://www.mypropertymentor.co.uk/ Roberta Ward

    ha ha, thanks Dan! I was thinking of all the poor starving agents when I wrote it ;-)

  • http://twitter.com/housingdabble Ben Harris

    Interesting Roberta and I've not seen anyone else pick up in this.

    Investors need to be able to take risks and the concern from this to agents in addition to reduced volumes must the issue of turning their pipeline through slower.

    Do you know how quick implementation is likely to be after consultation?

    • http://www.mypropertymentor.co.uk/ Roberta Ward

      Thanks Ben (@housingdabble ) No, have not heard anything about when changes will be implemented or how long it will take. Smacks of door been bolted after horse has gone.

  • Martin Wood

    Personally I don't see these as particularly draconian just sensible measures being implemented. For an industry that has already been bailed out once (and lets face it its probably going to be twice) I think that lenders have a moral and ethical obligation to ensure that their borrowers are not inadvertently committing mortgage fraud. I think most estate agents would agree that the market needs to “normalise” and that its about transaction levels as I also think most people would agree that mortgages should be granted on a little bit more than how much equity you have in your property and little else. In respect to the comments about reducing deposits and not rates I think that banks are very much of the opinion (as our many other professionals) that there is still a little bit more to come off the market and we wont really see the impact until public sector cuts have sunk in and VAT is at 20%. –

    I dont believe half of what the financial institutions (on a global scale) have been up to will ever come out and I do agree that it smacks of bolting the door and all of that, but I guess when you go to bed with a “shark” you expect to wake up with a few digits and limbs missing :)

    • http://www.mypropertymentor.co.uk/ Roberta Ward

      Ha ha! Them there sharks have been busy of late too ;-) Of course interest rates are only part of the equation as are LTVs. I still think there is a case for some *form* of self cert- via accountants etc as was done years ago-rather than a blanket ban as such. There is no doubt that the pile of poo the banks find themselves in is of their own making and not likely to get better in short term, and I agree values need to go down to a more sensible level.
      Thanks for commenting.( and welcome to the blog)

      • Martin Wood

        Absolutely agree that accountants can provide supporting documentation – unfortunately they do rather too good a job mitigating tax liability for cash business's :)

        I was thinking about this again last night and still cannot believe that the insurance companies have got off lightly with selling “pensions” – financial products that simply do not work which in itself fuelled BTL.

        In a property driven economy it is in rather a precarious state at present – it feels like 1993 to me but prices simply have refused to fall – a case of the emperors new clothes ? :P

        On a final note – we need to look at who benefited from all of this malarky it would appear that this stretches back a lot further than 3 years and seems a little over engineered IMO.

        PS great blog :)

        • http://www.mypropertymentor.co.uk/ Roberta Ward

          Re accounts, yes thats exactly my point that one size does not fit all for the business community who are self employed and may want mortgages, likewise with buy to let investors. Did you know that there has been a drop off of 75% of requests for BTL mortgages? And thats right at the time when more people than ever are looking for a rental property.
          You are right about the institutions too, they can play fast and loose with money and not worry that it will affect them. I remember the mid '90s well as thats when i started investing and it does feel similar- only worse this time as prices have not been allowed to fall back properly.
          Thanks again for your contribution.

  • Stephenwrigley

    We are now required by our network to ask for 3 months bank statements, 3 months payslips, P60 or full accounts (3yrs) on every case. The frustration on my part is that this doesn't tie up with the lenders requirements on most cases.

    I would much prefer that they did away with 'fasttrack' altogether rather than blurring the boundaries.

    • http://www.mypropertymentor.co.uk/ Roberta Ward

      Thanks for your comment Stephen. Yes the boundaries are very blurred and uncertain making it difficult for those working in the industry to figure out if they are complying or not. Clear rules do need to be set.I agree with you there.

  • Gordon

    We have a self cert mortgage, we are both self employed. We beg, borrowed and sold to raise the 25% deposit back in 2002. We have never missed a payment, only a part of the mortgage is interest only. We have no desire or reason to move for the foreseeable future. Maybe when we retire, but that is a fair way off. We could never get another mortgage, not just because of the FSA rules but we are happy where we are. We bought this house to be a family home not as investment, it’s a novel approach I grant you. 

  • http://www.mypropertymentor.co.uk/ Roberta Ward

    Self cert mortgages are now pretty much a thing of the past. The issue was never the type of mortgage, but the fact that there was little checking at all for means testing. Tarring all self employed with the ‘liar loans’ brush is both unfair,incorrect, and in my view, discriminatory.
    After all, without business owners, those who do qualify for mortgages just because they are employed by someone, there would be no ‘employment’ to qualify for!

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