Proposed FSA Regulations.

22 February 2013

It is a well known fact that what goes up must come down. Such a fact also applies to economic situations, with the property market providing a prime example.  Before the recession property prices in 2007 and 2008 were at an all time high, it does not take a property expert to predict that such increases cannot continue to rise exponentially into the future. History shows us that at some point housing prices would have to stagnate and invariably fall. This has been clearly demonstrated by the fact that average house prices across theUKare 11% lower than that of the peak in 2008.

Government figures show thatBritainis slowly beginning to recover from the financial hardship experienced over the last few years. With the economy slowly starting to recover, the property market is hopefully to soon follow suit. The Financial Service Authority (FSA) have seen this as a chance to put an end to the turbulent history of the property market which has previously been defined by rapid growth followed by even faster decline. In order to achieve this aim the FSA have targeted the Lenders and are seeking to impose stricter rules on Banks so as to prevent the reckless lending seen in the middle of the last decade.

The FSA are concerned that as money returns to the market lenders will come under increasing pressure to consider riskier lending and will focus on market share rather than maintaining lending standards. Such actions give rise to the public being able to easily obtain a mortgage thus causing property prices to become overly inflated and leading to the eventual crash in the property market.

The actions proposed by the FSA with regard to stricter lending rules are to firstly completely prohibit risky loans that are worth more than the current value of the property being bought. The widespread use of self-certified mortgages is now also to be ruled out. These previously accounted for a very high proportion of new lending. In future applicants will have to provide sufficient evidence that their income is large enough to justify the mortgage loan in question. Lenders will also have to assume that interest rates are noticeably higher than they are today.

In the long run this plan may hopefully aid first time buyers, as it will suppress the inflation of artificial house prices that were evident before 2008. The FSA in its consultation paper emphasise that relaxed mortgage requirements are not conducive to a prosperous housing market. Therefore whilst many may feel frustrated at the prospect of either continuing to live in rented accommodation or with parents, the FSA feel that by introducing strict lending rules, it is saving people from themselves by reducing the discussed inflation as well as stopping applicants from taking out mortgages that they may not realistically be able to repay.

At present these are merely proposals set out in a consultation paper by the FSA. With the Banks current unwillingness to lend such measures in today’s economic climate are not required. However if history is anything to go by the property market will hopefully recover and so the FSA must act quickly so as to prevent another future crash in the property market.

For additional information please contact Edward Worthy on 01245 228124 or

The above is not legal advice; it is intended to provide information of general interest about current legal issues.