It’s a bit hard to believe but today, through a City Watchdog report on mortgages, the FSA found out that banks were not checking borrowers actual income when they were applying for a home loan. In fact, half of all applications granted between 2007 and the beginning of this year had not been thoroughly checked by the lenders.
This does pose the question on why banks are taking such huge risks after the sub prime mortgage crisis effectively caused the global economy to dip. Tougher restrictions were imposed on those wishing to buy properties in order for this kind of fiasco to be averted in the future. Borrowers in the UK could not get 100% mortgages anymore and banks had stopped lending.
So for this report to highlight these figures is actually shocking and it must have given the FSA a huge realisation that the banks will just not listen. The regulator has now proposed that self certification mortgages will be scrapped and they will force the banks to make stringent checks into the income the borrowers actually make rather than claim to make. This, they found, was one of the fundamental flaws of self cert mortgages. This really doesn’t come as much of a surprise as people will do whatever they needed to do to secure their dream property. Even if it left them penniless, which is another aspect that the FSA found to be the case.
Maybe this is a great thing that the FSA have realised what is happening and will hopefully shape up the industry again. Their four month consultation which the lenders will soon commence and it is hoped that those who cannot afford to borrow don’t. It is essential for future economic growth that people only spend what they can afford to spend and the banks need to go some way in assuring this.
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