Building Blocks

New Tighter rules Hit Lenders: First-time Home Buyers May Have a 10-year wait

All those first timers who are unable to come up with the deposit themselves or from their mom and dad are forced to rent or stay in their parents’ place for up to ten years longer than their middle class counterparts. This was the claim recently from one of the national largest building societies and through independent financial advisors. All of this stemming from regulators desire to tighten up on lending rules in the financial sector.

The Financial Services Authority rules now require that every lender must apply greater caution when trying to ensure that the borrower is financially sound and can afford the loan. For instance, when an interest alone basis mortgage is taken, the calculations of the lender must be done using the guidelines of traditional repayment mortgage. Moreover, self certification mortgages are not going to be allowed anymore and every borrower must furnish proof of their income.

This will result in the following happenings-

It will not be easy for borrowers to obtain fast track mortgages as they will have to go through an elaborate documentation process. This will make the process much longer, so no longer a ‘fast track’.

It will become difficult for self employed persons to avail home loans.

With the lending criteria being tightened the end result has seen a two tier home market develop.

A recent survey revealed that the average age of all those who can rely on the property of their parents is 27 while the average age is 37 years for those who do not have rich parents and are availing home loans. Today, many first timers manage to get some gift or loans from grandparents and parents and are actually able to own property.

Most persons who want to buy a home will need to come up with 15% of the price and without this they may not be able to take advantage of lower interest rates.

In spite of regular fluctuations in real estate prices, many people have managed to accumulate sufficient property and wealth. The barriers to home loan are established to protect the consumers from excessive borrowing. With the regulation of the mortgage market, the consumer has access to actual money and not risky lending. It is impossible for the regulatory authorities to predict the future but it is not wrong to take the precautionary measures well in advance.