Builders warn government over FSA's 'responsible lending'

The leading players in Britain’s home-building industry have written to Chancellor George Osborne warning him of the “dire consequences” if  proposals to change mortgage regulation go ahead.

Under proposals put forward by the Financial Services Authority, mortgage lenders would have to take responsibility for a borrower’s ability to repay their loan. Critics say that 'responsible lending' would mean virtually no lending.

The organisations that have come together to voice their warnings include the House Builders Federation, NHCS and National Housing Federation.

In the letter, HBF’s executive chairman Stewart Baseley said: “Lenders should of course be required to lend responsibly. But the onerous and overly prescriptive proposals will restrict access to home ownership and have far reaching implications.”

Baseley pointed to independent research which showed that had FSA’s proposals been in place, of the current 11m current mortgage holders, nearly half would not have been able to borrow what they did.

The same research, carried out by Policis, shows the FSA’s new rules would have reduced the amount available to 5.6 million people, with 2.2 million unable to access any funding. It says the changes would stop 153,000 house purchases a year, with up to 57,000 first-time buyers being refused finance.

Baseley also said that the FSA needed to change its assumptions that shared ownership lending is sub-prime, or that banks will continue to turn away more than £240m of valid business.

CIH chief executive Sarah Webb said: “There is a clear need for better mortgage lending. However, the proposals in this consultation will prevent households who could service a mortgage from realising their aspirations to become home owners.

“Furthermore, there is a real risk that these measures will undermine what is already a weak housing market – putting jobs and homes at risk. This isn’t just a case of closing the door once the horse has bolted, this will make matters worse.”

NHF chief executive David Orr said: “If the FSA does not alter its stance, it will strangle mortgage lending for first-time buyers and destroy the ability of lower income families and key workers, priced out of the open market, to part-buy shared ownership homes from housing associations.”