FSA rethinks mortgage affordability proposals

Published 22nd Mar 2011

• FSA's concession welcomed by Council of Mortgage Lenders
• Plans 'would have frozen out 2 million potential homebuyers'


The Financial Services Authority has made a key concession to lenders by admitting that its rules on how homebuyers should be assessed for a mortgage may be too stringent.

In its annual business plan, the FSA acknowledged that its proposal that lenders should look at whether a customer can afford a mortgage over a 25-year period "may not be appropriate given the range of individual circumstances".

The regulator, which has faced intense lobbying from the industry, also stressed that it did not intend to ban interest-only loans.

"The FSA nevertheless remains focused on ensuring that the new regime includes a robust assessment by the lender of the affordability of the loan for the individual, both for interest only and repayment loans," the regulator said.

The Council of Mortgage Lenders had warned that more than 2 million people would not have been able to take out mortgages if the new rules had been implemented, and had called on the public to write to the FSA, local MPs and ministers to protest against the "flawed and impractical" proposals. The lenders' lobby group welcomed the move by the FSA on Tuesday.

The business plan for 2011-12 is likely to be one of the last published by the FSA, which will be broken up by the end of 2012 or 2013. It will be turned into the Prudential Regulatory Authority (PRA), to be headed by Hector Sants, the current FSA chief executive. The PRA is expected to cost an estimated £75m-£150m to set up.

A Financial Conduct Authority – with set-up costs estimated at £25m – is also being created and will be run from September by Martin Wheatley, who is at present head of Hong Kong's financial regulator. Margaret Cole, the FSA's head of enforcement, will take charge until Wheatley arrives. The FSA will try to operate under this new structure from next month.

A financial policy committee is being set up inside the Bank of England under Mervyn King, the Bank's governor, to oversee macroeconomic issues and financial stability.

Sants pledged on Tuesday to keep the FSA's headcount at 4,000 until the break-up of the regulator is completed, after hiring an extra 195 staff last year to help supervise major firms.

"The 2011-12 business year for the FSA will be a difficult one," Sants said. "We have to ensure that we are operating effectively as a supervisor as well as taking forward the key policy initiatives … All this has to be done at the same time as taking forward the preparations for a new regulatory structure."

Source: ' Guardian '

View All Latest News