Don't Let Home Ownership Lure You into Crisis

Recent figures suggest that mortgage lending is still only half of what it was before the economic crisis struck back in 2007. Obtaining a mortgage is becoming increasingly difficult as banks balk at the prospect of risky lending, and in this day and age even the slightest blemish on your credit record can scupper you chances of getting a foot in the door of the property market, especially if you’re a first time buyer.



What's Holding Up UK Housing Market
Of course mortgage rationing isn’t the only thing that’s holding up the housing market in the UK, which is influenced by a whole range of economic factors, but it’s often one of the most frustrating obstacles in the way of a buyer. By the time the banks have even begun to recover from the aftershock of the economic downturn it is likely that we will see even tighter lending regulation introduced by the Financial Services Authority (FSA), the UK mortgage regulator.
Tighter regulations aren’t all bad news though. They will in effect provide a lending safeguard preventing consumers from borrowing on the unsustainable level seen a decade ago. It could perhaps also teach us all a valuable lesson about debt management.

The largely unregulated lending seen before the crisis was bound to end in tears for all concerned. Mortgages of up to 125% of the value of a property were being handed out to some buyers with few background credit checks made and little assessment of whether the buyer would actually be able to pay the mortgage off. The recession brought with it plummeting house prices and poor job security which only exacerbated the problem.

Repayment

The simple truth is that we were borrowing beyond any means to repay, and the banks seemed more than happy to lend, so there was nothing to stand in the way of buying a home way out of our price range only later to find that we just couldn’t cope. The boom and bust left many homeowners with hefty negative equity debts, sometimes unable to keep up repayments on excessive loans and many even faced repossession.

As a result of the irresponsible lending of the past the FSA have announced plans to implement a new “common sense” led set of regulations that could come into play early in 2013 to help avoid borrowing beyond the ability to repay in the mortgage market. According to the new rules lenders will have to assess affordability more thoroughly.

It’s only human to aspire to a standard of living beyond our means and it’s all too easy to stretch that much further than you can manage when it comes to choosing a new home, but in order to borrow more safely we need to take a step back and colour our aspirations with a sense of what is realistic. Tighter regulations and rules on lending may come as a frustration to buyers but maybe it will make us think twice about matching our expectations with our means, not just in the mortgage sector but across the board.