MMR: 25-year term and capital buffers dropped

Sarah Davidson

December 18, 2011

The Financial Services Authority has dropped the proposals after listening to industry feedback.

Today’s paper said: “In the light of responses we are no longer proceeding with two of the other key elements of the proposed framework for responsible lending discussed in CP10/16.

“We agree with respondents that these proposals would be unnecessary ‘layers’ of protection on top of the other affordability proposals.”

The FSA said it shared many respondents’ concerns about the impact the proposal to assess affordability on a maximum term of 25 years would have on younger borrowers, particularly first-time buyers.

The paper said: “We have also had regard to the removal of compulsory retirement ages and later state pension ages.”

The FSA agreed that building an extra buffer into the affordability assessments for credit impaired consumers could have the effect of reducing their borrowing capacity, restricting their access to the market and forcing them to borrow from more expensive sources, such as the high-cost credit sector.

The paper said: “This would simply have the effect of widening rather than addressing financial inequalities.

“We believe that addressing poor underwriting standards will ensure that mortgages being taken on by all borrowers are affordable. We do not want to restrict access to the mortgage market unnecessarily.”


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