Borrowers Making Over $480,000 to Escape Tougher Mortgage Checks
Mortgage customers earning more than 300,000 pounds ($480,500) annually will be exempt from tougher affordability checks designed to prevent borrowers taking on too much debt, the U.K. Financial Services Authority said.
The rules are part of an overhaul proposed by the FSA following seven consultations and three years of work. The regulations require lenders to assess the impact of rising interest rates in mortgage-approval calculations and ban interest-only mortgages in cases where the borrower would have to rely on rising house prices to repay the loan.
The FSA wanted the borrowing process to be “more straightforward for mortgage professionals, high net worth individuals and business customers who can opt out of receiving advice,” the regulator said in the statement. The regulator classifies high-net worth individuals as having 3 million pounds in net assets or an annual income of 300,000 pounds.
“We recognize that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers,” Martin Wheatley, managing director of the FSA, said in an e-mailed statement today.
The FSA is reforming the U.K.’s 1.2 trillion-pound mortgage market after some practices exacerbated the banking crisis that followed the collapse of Lehman Brothers Holdings Inc. in 2008. Tougher rules will rein in the type of practices that led to the U.S. sub-prime crisis, Adair Turner, chairman of the FSA, told lawmakers earlier this year.
The practice “was the absolute core of the U.S. sub-prime disaster,” Turner said.
The full set of proposals will be implemented in April 2014, the FSA said.
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