Tough new mortgage lending rules to be announced tomorrow are expected to hit millions of prospective first-time buyers as well as those in their 50s.
The regulations, designed to bring an end to the reckless borrowing of the past, are likely to mean those wanting to get on the property ladder continue to face high hurdles to take out loans.
The Council of Mortgage Lenders warned that it would mean today’s tight lending conditions remained a “permanent feature” of the property market. Among those affected by tomorrow’s announcement by the Financial Services Authority will be those looking to take out interest-only mortgages .
Because they have lower monthly repayments, these types of loans have in the past helped millions get onto the housing ladder. It is expected that under the new rules, these borrowers will in future have to show that they are saving a pot of money to pay off the capital when the mortgage matures.
Lenders would be required to check at least once during the term of the loan that the savings pot its still in place, it is thought. The changes being announced by the regulator are also expected to mean that lenders must make sure that a mortgage cannot be given out unless a homeowner will repay it before their 70th or 75th birthday.
It will pose difficulties for people who are in their 50s wanting to take out a typical 25-year mortgage. For example, a 55-year-old would struggle to obtain a home loan because it would not be paid off until they were 80.
Lenders have already started to cut back drastically on interest-only deals ahead of the widely-anticipated rules being introduced. Nationwide, Britain’s biggest mortgage lender, this month announced that it would stop offering such mortgages to new customers.
Figures from the FSA indicate that of the 11.2 million home loans, around 43pc are interest-only deals.
Mark Harris, of mortgage broker SPF private clients, told the Daily Mail (LSE: DMGT.L - news) the new rules would pose further difficulties for those struggling to get on to the property ladder with many already delaying the move until the age of 35 because of problems getting finance.
The rules are also expected to make it harder for Britain’s millions of self-employed workers to obtain home loans, since they will have to provide more evidence of their earnings in the form of audited accounts which many will struggle to provide or do not have.
A spokesman for the Council of Mortgage Lenders said: “The FSA has already trailed the broad outline of the forthcoming regulatory changes for a long time, and the mortgage market has to a great extent already absorbed and planned for them. On the one hand, this means that consumers are unlikely to suffer significant additional impacts as a result of the changes.
“On the other hand, it also means that the relatively high hurdles for customers in getting a mortgage are likely to remain a permanent feature of the mortgage market.”
Figures from the council show how there has already been a dramatic fall in the number of loans handed out to buy a house. In August 2007, 103,000 mortgages were made available, while in August this year there were only 55,300.
It comes as a study revealed that half the population is worried about mortgage rates, with 26pc of those who have home loans fearing having their homes repossessed.
Some 54pc of people under 30 who do not own a home are worried about getting on the property ladder.