Britain Revamps Mortgage Lending Rules

Mortgage lenders in Britain will soon have to verify the incomes of all people taking out mortgages according to new regulations suggested this week.

I don’t get it. Why would lenders need to be regulated in this way? Lenders have an enormous incentive to be repaid. Why does the government have to step in to force them to do due diligence?

Incentives must be screwed up in the system somewhere so that lenders are selling their loans and don’t have adequate incentive to make sure these loans are repaid.

From the NYT: LONDON (Reuters) – The country’s financial regulator plans to force mortgage lenders to check the income of all borrowers, scrapping so-called “liar loans” blamed for helping to fuel bad debt problems at the heart of the credit crunch.

In the first draft of plans to overhaul the mortgage market, the Financial Services Authority said on Monday it would impose affordability tests for all home loans, a move that would force consumers to detail spending before a loan is approved.

But it stopped short of capping loan to property price ratios that could have effectively banned mortgages like the 125 percent loan offered by Northern Rock before its near-collapse.

The initial findings of the review — which reflects the increasingly hands-on approach of a regulator widely criticised in the aftermath of the credit crunch — also called for the FSA’s scope to extend to buy-to-let mortgages.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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