Housing minister warns FSA crackdown on mortgage lending 'risk shutting out house buyers'

Published 31st Dec 2010

The housing minister warned today that new rules introduced by the Financial Service Authority to halt reckless mortgage lending could mean shutting thousands of buyers out of the property market and deepening house price falls.

Grant Shapps said lending reforms being put forward by the City watchdog must not be so severe that they exacerbate an already difficult situation for potential buyers, according to the Financial Times newspaper.

The housing minister is to meet with FSA head Hector Sants next week and he plans to call on the regulator to rethink its proposals.

Under new rules, lenders would have to impose tougher affordability and income verification checks and to make sure people with interest-only mortgages had a way of repaying their loan at the end of its term.

The Council of Mortgage Lenders has warned that around 45 per cent of people taking out a mortgage during the past year would have been hit by the new measures if they had already been in force.

Mr Shapps claimed that under the rules he would not be able to get a mortgage on his home, despite being a well-paid minister in his 40s. He said he did not want to see banks return to their old ways of lending indiscriminately, but warned that it would be a mistake to ‘bolt the door’ when the housing market correction had already taken place.

He also warned the FSA to steer away from ‘micro-managing’ what should be a competitive market. ‘The problem is that, at the moment, it is not competitive enough,’ he said.

Banks and building societies tightened their lending criteria significantly in the wake of the credit crunch, with borrowers now needing deposits of 40 per cent to qualify for the most competitive rates in many cases.

But the move has excluded many people from the mortgage market and led to delays in first-time buyers getting on to the property ladder, as they raise the deposits they now need.

Net mortgage lending, which strips out redemptions and repayments, fell to £9 billion in 2010, well down on £110 billion in 2006 before the credit crunch first struck. It is expected to fall further during 2011 to £6 billion - the lowest level since 1980.

Mr Shapps is expected to tell Mr Sants that he wants the market to be regulated, but not in a ‘product by product’ way that would snuff out innovation. He blamed the fall in the number of new homes built in the UK during the past year on the mortgage drought.

He said: ‘The building figures are the lowest for peacetime since 1924, but if you ask the housebuilders what the main problem is, they say mortgage supply, meaning a lack of people to buy their products. Planning is only second or third on their list.’

But commentators have in part blamed Mr Shapps for the fall in building numbers, due to his withdrawal of regional housing targets, which were introduced by the Labour government.

They have been replaced with the New Homes Bonus incentive, under which councils are rewarded for allowing development in their area. The budget for building affordable homes has also been slashed by the Government as part of its cost cutting measures.

Source: ' This is Money '

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