We have been taking a closer look at the FSA regulation being considered to reduce the risks in providing mortgages that may subsequently fall into arrears and have found a detailed list put forward as guidelines for lenders.

Expenditure is determined for the mortgage applicant and their dependants using 3 areas of assessment; committed expenditure, personal expenditure, and contingency expenditure.  Below is the detailed list of areas to be assessed.

Committed expenditure

Income tax and NI
Servicing of existing secured and unsecured debt
Utility bills and other household bills
Council tax
Service charges or land rent
Shared ownership rent
Cost of investment vehicle to repay interest-only loan
Insurance premiums
Pension contributions
Nursery/college/school/university fees
Alimony and maintenance payments
TV license and communication
Regular savings
Other existing commitment

Personal expenditure

Food and drinks
Alcohol and tobacco
Clothing and footwear
Household goods and services
Health and personal care
Transport
Recreation, culture, restaurants and hotels
Holidays
Other miscellaneous goods and services

Contingency expenditure

Prudent allowance for any missed or understated
expenses

Many industry professionals and analysts are starting to comment on the FSA regulation aimed at helping to ensure more responsible lending.  From the many comments made so far the regulation seems to be not fully thought through and will almost certainly have consequences that (hopefully) the FSA did not intend.  Here are some examples:

A self-employed person with variable income may no longer qualify for a mortgage, even though the future income is more secure than many in salaried jobs which could be at risk from redundancy.

An existing mortgage holder wanting to downsize their home and “reduce” their mortgage commitment may no longer be able to do so if they not meet the new FSA guidelines placed on banks. Is this not crazy, surely reducing the mortgage commitment actual reduce their risk of default?

An existing mortgage holder, that does not meet with the new financial guidelines, may end up “stuck” on an unattractive interest rate as they do not”qualify” for a remortgage onto a more favourable interest rate.  The regulations could allow banks to exploit this to maximise their margins!

These are just some of the examples we have seen being discussed.  Hopefully the FSA will provide further clarifications (or revisions) to their lending guidelines, if not then many more people could suffer financial difficulty at a time when we need to support them.

Based on the feedback and analysis we have seen the FSA regulation, as currently reported, does seem to be a step too far.

You can read more details on the FSA Press Release here … http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/140.shtml