The Financial Services Authority (FSA) on Monday proposed significant changes to the types of mortgage products sold in the UK and the way UK mortgage lenders conduct business in a housing market that shows signs of recovery as average prices increase. The FSA’s proposals, part of a push for “a more intrusive and interventionist style of regulation,” were published in a 118-page discussion paper on its mortgage market review (available to download here), which identified forms of irresponsible lending practices and high-risk products. “The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress,” said FSA managing director of supervision Jon Pain. “We recognize that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.” The FSA is looking to ban “self-cert” mortgages — similar to stated-income mortgages in the US — by requiring verification of borrower income, according to a statement. The proposals also include imposing mortgage affordability tests and making lenders responsible to asses a consumer’s ability to pay. FSA proposed banning the sale of products that carry “toxic combinations” of characteristics that put borrowers at risk. It also seeks to ban arrears charges in cases where a borrower is already repaying. The proposals include requiring all mortgage advisers to be “personally accountable” to FSA, as well as extending FHA’s scope to include buy-to-let and all loans secured by a house. The FSA’s proposals come at a time when the UK housing market continues to post strong recovery. UK property database Rightmove saw a 2.8% monthly increase in average house price in October — the largest October rise in six years — and a 0.2% year-on-year gain in average price. Buyer sentiment is improving along with average prices, leading to a shortage of available properties in London, where residential property is scarce to begin with. “London generally leads the country out of property recessions, as underlying demand remains strong in the capital city,” said Rightmove commercial director Miles Shipside in a statement. “Agents report a frenzied market in the best locations with supply at a premium, and buyers competing hard.” Three of London’s top five performing boroughs experienced double-digit monthly gains in average price, from 11.4% to 12.6%. Four of the bottom five performers posted monthly gains ranging from 1.9% to 4.6%. The poorest performing borough, City of Westminster representing central London, posted the only negative monthly change, falling 1% from September’s average price. Write to Diana Golobay.
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