Homebuyers face loan squeeze if mortgage rules are tightened
Mortgage availability will shrink further and many people could be excluded from home ownership if new rules on responsible lending are brought in, a trade body warned.
The Council of Mortgage Lenders said the rules being proposed by the Financial Services Authority (FSA) failed to take into account the changes that had already taken place in the mortgage market since the credit crunch struck.
The FSA wants to introduce tough affordability and income verification checks, including getting lenders to assess whether borrowers would still be able to afford their mortgage if interest rates rise.
The CML said there was a "high risk" that if the new rules were introduced, banks and building societies would further tighten their lending criteria, intensifying the current mortgage shortage and creating "significant financial exclusion" among "perfectly credit worthy borrowers".
In its response to the FSA's consultation on the issue, the CML warned that the City watchdog had also failed to take into account the impact that separate regulations on the level of capital lenders must hold would have on the mortgage market.
It has called for the new rules to be deferred, given that the risks are not a feature of the current market.