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Britain's financial regulator announced plans today to require mortgage lenders to check the income of all borrowers, ending so-called "liar loans," which boosted bad debt risks.
The UK regulator, the Financial Services Authority, said it would impose affordability tests for all home loans, a move that would force consumers to detail spending before a loan is approved.
However, it refrained from capping loan to property price ratios that could have banned no-deposit loans.
The initial findings of a review also called for the FSA's scope to extend to buy-to-let mortgages.
The proposals, published in the mortgage market review discussion paper, reflect the FSA’s changed approach to a more intrusive and interventionist style of regulation.
The review’s key features are:
Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
Banning ‘self-cert’ mortgages through required verification of borrowers’ income;
Banning the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk;
Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears;
Requiring all mortgage advisers to be personally accountable to the FSA;
Calling for the FSA’s scope to cover buy-to-let and all lending secured on a home.
Jon Pain, FSA managing director of supervision, said: “The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.
“The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end.
“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”
The review has also identified that the irresponsible lending practices seen in the market until recently will be curtailed by the FSA’s existing work on capital and liquidity.
The FSA said the proposals are designed to tackle the problems identified while maintaining a vibrant and sustainable market. But the FSA has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.
The UK's FSA is planning to ban self-certification mortgages as part of a shake up of the industry. Ray Boulger from John Charcol and Anthony Scott from Charles Stanley discuss the UK mortgage market:
3V
3V Transaction Services, the Irish payment voucher company, today announced it is set to launch its pay-as-you-go VISA voucher product in the Benelux region. The announcement follows the agreement of Luxembourg's Banque Invik, to act as 3V Transaction Services Ltd European banking partner. Banque Invik will work in conjunction with a number of national distribution partners as the 3V product platform is rolled out across European countries.
It is expected that the Dutch market will yield spend values of €75 million per annum for 3V.
CNBC's Steve Liesman asks Anil Kashyap, professor of economics at finance at the U. of Chicago, whether the Fed should raise rates.:
US markets
In New York, the Dow Jones is up 69 points or 0.72% to 10,065.
The Nasdaq is up 0.69% and the S&P 500 has risen 0.34%.
Thomson Reuters says the blended third quarter earnings growth rate, which combines companies that have reported with analysts' estimates for those that haven't, has improved to -22.6% for the third quarter from -24.6% the prior week for S&P 500 components.
Investors are also reported to have responded positively to comments from Federal Reserve Chairman Ben Bernanke on Sunday that the world financial crisis signals the need for global rebalancing. Though he didn't offer further specifics, most analysts view such comments as signalling that debtor countries like the US must save more and that countries with surpluses like China spend more.
UK GDP will struggle to hit 1% growth in 2010, according to Ernst & Young's Item Club. Peter Spencer from Ernst & Young Item Club and Anthony Scott from Charles Stanley discuss the outlook for the UK economy:
In Dublin, the ISEQ is up 0.12%.
BoI is down 2%; AIB is also slightly down at 0.11%.
On the New York Mercantile Exchange, oil for November delivery is trading at $78.45 down 8 cents from Friday's close. In London, Brent crude for November delivery is trading at $76.91 a barrel.
Currencies
The euro is trading at $1.4947 and at £0.9139.
For live currency updates, check the right-hand column of the Finfacts home page.The dollar traded at a record low $1.6038 per euro on July 15, 2008.
