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New rules to stop reckless lending and protect consumers

The FSA reveals tough new lending rules to stop borrowers from becoming "mortgage prisoners"

October 25, 2012

New regulations tightening rules on mortgage lending have been announced today by the industry watchdog, the FSA. The rules will force lenders to apply much more stringent conditions on mortgages with more checks and balances to ensure that customers are able to repay the loan. Much of the focus is on interest-only loans that make up 42% of the 9.8 million mortgages, with only 23% of them having any repayment strategy.

Aspiring homebuyers will find it takes longer to get a loan as they will often be required to speak to a financial adviser. Although the new rules are not coming into force until late 2014, lenders will be immediately prohibited from penalising those on interest-only mortgages by increasing their rates.

Although these rules are a big change in what is officially required they largely reflect what lenders have been doing since the credit crunch in 2007. They will become more significant if easy credit does return as they will stop mortgage lenders from returning to the habits of the boom years. Moreover, the rules are not as restrictive as some commentators anticipated. Interest-only loans will not be banned, there will be no upper age limit on mortgage lending, and no mandatory minimum for deposits.

Martin Wheatley, managing director of the FSA, said: “These new rules will help create a more sustainable market that works well for everyone, whether they are a borrower or a lender. We recognise 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.”

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