Granting of home loans set to become more rigourous

Granting of home loans set to become more rigourous

The Swiss-based Financial Stability Board have published global guidance to make granting home loans more rigourous.

This comes years after weak lending standards in the mortgage market spiralled into the worst financial crisis in decades.

The Financial Stability Board, a regulatory task force for the world’s top 20 economies, said poorly underwritten home loans contributed significantly to the financial crisis.

Home prices fell sharply in many countries – including the US, Ireland and Spain – contributing to major economic difficulties since the financial crisis erupted in 2008.

National supervisors from G20 countries will be expected to ensure that lenders verify and document each applicant’s job status, income and ability to repay the loan in full.

Some countries have already cracked down on so-called “liar loans” where a mortgage is based on an applicant’s declared rather than verified income.

Supervisors should also set “appropriate” loan-to-value ratios or how much of the purchase price can be borrowed.

The FSB stopped short of requiring a minimum LTV ratio, saying it would be difficult to apply such detailed guidance globally. The step would intrude on domestic political sensitivities in the supply of credit.

The news of more rigourous loan criteria comes just days after AIB lowered the amount it is willing to lend to first time buyers.

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