Major mortgage market reforms

The Financial Services Authority (FSA) has today proposed major reforms in the mortgage market with the publication of a discussion paper.

It's about time.

Whilst questionable practices in the mortgage sector were not the only (or even leading) cause of the global banking crisis, the easy availability of home finance has put many borrowers in a difficult or even dangerous financial position.

One of the proposals today will effectively ban self certification mortgages, so-called 'liar's loans'. These used to be particularly popular with self employed borrowers but were also used, sometimes unsuitably, by people who wanted to borrow more than they could really afford based on traditional lending multiples.

Contrary to what some are saying, the end of self certification mortgages does not mean the end of the mortgage lending to the self employed.

It will mean that all borrowers will have to evidence their earnings and also disclose more information, with supporting documentation, about their expenditure, as lenders start to assess affordability more stringently on every mortgage application.

Another substantial area of reform is the regulation of the currently unregulated buy-to-let mortgage market and forcing all mortgage advisers into the FSA approved persons regime.

Buy-to-let mortgages have remained unregulated for too long in our opinion; by treating them as commercial mortgages the FSA has left this market wide open for unscrupulous property investment 'advisers' who do not necessarily have the best interests of their customers at heart.

Here at Informed Choice we do not work in the mortgage market, instead focusing on retirement and investment planning. We do monitor developments in this area closely as they can have an impact on the wider financial planning considerations for our clients.

The proposals published today seem sensible and will hopefully be embraced by mortgage advisers wanting to demonstrate more professional standards.