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Mortgage proposals exclude ‘good’ borrowers

Lenders respond to FSA mortgage review
A detached house

More homeowners could struggle when interest rates rise

The Council of Mortgage Lenders (CML) has criticised proposals to tighten up rules on responsible mortgage lending.

Half of all mortgages taken out between 2005 and 2009 would not have been granted if the measures proposed by the Financial Services Authority (FSA) had been in place then, according to analysis by the CML.

FSA proposals include requiring lenders to carry out affordability tests for all mortgages and to calculate this assuming the loan will be taken out on a repayment basis over no longer than a 25-year term. 

It has also proposed extra protection for people who have had credit problems in the past and making lenders apply a ‘stress test’ to make sure the loan would still be affordable if interest rates were to rise by 2%.

The CML estimates that of the 4 million loans that would not have been granted, 3.8 million of these would have been ‘good’ loans where the borrower would not have experienced any payment difficulties.

Evidence from the FSA suggests that 16% of borrowers are already overstretched financially but as interest rates are currently low this is likely to get worse when they rise again.

If you are struggling with your mortgage, visit our guide to avoiding repossession.

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