Another empty stable door is about to be shut. Having failed to do anything in the good times about mortgage deals that offered 125% of the value of your home, six times your salary, or no proof of income, the Financial Services Authority (FSA) has finally decided to “do something” about reckless lending.
But its proposals are too little too late. And whatever anxious property bulls may claim, they will have no impact on house prices.
The FSA’s proposals are garnering plenty of headlines but are actually pretty modest. Although not finalised, they are expected to require lenders to show that a borrower has proof of income. Further, says Melanie Bien of Savills: “the capital resources of lenders will be considered” with the possibility of “new levels being set”.
Buy-to-let mortgages may also come in for tighter regulation. But who will actually change tack as a result?
Sure, self-certification of income used to be popular, accounting for 23% of residential mortgages, but only one lender still offers this type of product. That’s because no-one wants it any more. Any self-employed people or freelancers thinking of applying for a big loan to fund an asset that will probably drop in value in the current economic climate are, to put it charitably, in a minority.
It’s the same with buy-to-let: it’s yesterday’s investment. Many amateur landlords who bought near or at the top of the market would probably be happy to back out altogether if they could find a buyer. Few are anxious to get themselves further into debt, whatever the lending rules.
Meanwhile, about the only measures that would have a direct impact – the imposition of formal loan-to-value limits and/or income multiples – are unlikely ever to be introduced. They are not needed. Lenders are already rationing credit and mortgages, fearful of more bad debt losses.
So ignore the brouhaha being generated about the FSA “killing off a housing market recovery”. There are bigger forces at work – rising unemployment for starters – that will do the job much more effectively.