New mortgage rules have been announced this week in a bid to prevent the return of irresponsible lending.
The new rules are set to be introduced in April 2014 and will only offer potential homeowner’s mortgage deals they can afford. Lenders will have to consider a borrowers income and outgoings compared to before when the rise of housing prices were taken into consideration. As a result interest only mortgages will only be offered to people who have a firm repayment plan in place.
News of the restrictions comes after potential buyers have had to stretch their finances to enable them to purchase their own property. A difference of how the housing market has changed is shown by last year’s figures which revealed a house was worth five times a buyer’s average income.
The Council of Mortgage Lenders has welcomed the new restrictions that will help buyers to become more responsible with how much they borrow and have agreed that they should only be offered deals that are affordable to them.
An additional mortgage rule was also introduced along with the new restrictions which has already being implemented. The rule is that lenders must not take advantage of a borrower who is unable to get a mortgage.
It is estimated that nine million people who already have a mortgage will be affected by the changes and also people who are struggling to get on the property ladder.
Martin Wheatley, Financial Service Authority (FSA) Managing Director, commented: “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.
“At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want.”
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By Amanda Bainbridge