New UK lending rules
Monday 26th October 2009, 3:00PM GMT.
JFSC banking and insurance director Mark Sumner
NEW rules unveiled by the UK’s financial regulator to tighten lending criteria will ‘indirectly’ affect borrowing in Jersey.
The Financial Services Authority last week revealed a raft of new measures to reform the mortgage market in an effort to crack down on lenders and reckless borrowing.
Although Jersey banks are regulated by the Jersey Financial Services Commission and not the FSA, most lenders in the Island are UK-owned and will follow the new procedures.
The FSA plans to make banks and other lenders liable for loans that cannot be repaid. It is proposing to ban self-certified mortgages and impose new affordability tests on home buyers.
Under the new rules, lenders will have to carry out thorough checks on people’s incomes before granting a mortgage, such as examining their spending habits and existing loans.
JFSC banking and insurance director Mark Sumner said that Jersey would be ‘indirectly’ affected by the new FSA rules.
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The FSA is taking a pretty intelligent route to improving lending standards after the disasters of the bubble period. Rather than go down the blunt tool route of salary multiples they are trying to move to the more realistic lending models. The economist Minsky said there were three lending investment models with the Ponzi model being worst and this legislation moves lenders back to the more conservative Hedge unit model where capital and interest can confidentally be repayed (no “liar” loans etc). People will have to save up more for a deposit and/or be more realistic about what they can buy but then house prices may come down which would be great over here. Trouble is it will mean less dodgy loans for our lawyers to help create securitisation packages for!
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All this means is yet another nail in the coffin for people trying to purchase property!
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They won’t have to carry out much of a check before granting a mortgage in Jersey. Just one question, do you earn a fortune? if not then NO you can’t have a mortgage.
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Doubt the JFSC will have the gumption the staff or the wits to regulate lending. Bit too technical for them and likely to affect the status quo, also. too many civil servants with vested interests in maintaining the idiotic lending multiples.
Still! were at the top of the IMF list so job done eh???
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A predictable response by some, but actually, these measures could actually help someone secure a mortgage.
When I had to re-mortgage my house some 8 years ago, questions were asked about my lifestyle. The lenders intermediary asked about cars and holidays etc. My response was that my main aim was to secure a roof over my head, and buying a new car every three years was not a priority. Likewise, holidays at home were quite acceptable if it ment that I could borrow a significant mulitiple of my salary.
If you want to get your own place, it may mean not having holidays for a few years, and making do with a ten yer old car. Also purchase of new items such as furniture and flat screen TV’s may have to wait.
If you are able to demonstrate to a potential lender that you are willing to taylor your lifestyle to service a mortgage, you should get the loan.
There is nothing more frustrating than for a lender’s debtor to default on a loan or owe money, while the debtor continues to swan around in a newish car and takes overseas holidays !
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“All this means is yet another nail in the coffin for people trying to purchase property!”
It doesn’t have to be, Mogit. If you can afford to buy a house, you will still get your loan. However, when wanting to get on the property ladder, many people lose scope and get mortgages they cannot really afford. It is those people that afterwards get into trouble – so why not tell them in advance. I know it is not nice to disappoint someone, but it IS being realistic. Buying a house you cannot afford leads to repossessions and a lot more stress and heartache than not being able to buy a house 5just yet°. Having said that, house prices should become more realistic – mortgages would follow automatically (or should)!
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