Lending Going Back to Basics to Give A Safety Net to Borrowers
The Financial Services Authority (FSA) wants to put a belt on borrowers and tighten up the problems from the past few years. They hope to stop homeowners from borrowing more than they can afford to repay. So new regulations have been submitted to lenders in the effort to give a safety net to protect borrowers.
As recent as last week, FSA published a report saying it wants lenders to be more strict on how they lend. Research results found that 46 per cent of households had no money left or were short in paying the mortgage payments each month. Under new proposals, the FSA wants all mortgage and remortgage lenders to get solid proof of income. This is so borrowers have less fo a chance of over stretching their limits. Not only will this keep homeowners from getting into financial trouble but banks from holding a defaulted loan. Lesley Titcomb of the FSA says: " Mortgage companies need to get back to basics to of respectable lending and ensure there is not a repeat of the boom period. Problems might be prevented before they get out of control. We are determined to protect vulnerable consumers by making sure everyone who takes on a mortgage or remortgage can pay it back." Also, when interest rates rise, new tools for judging affordability will be put into place. Overall, the FSA is simply taking a stronger stand with higher standards placed on all lenders. This should present over-extending of income and helps improve recovery in the short and long term.