Who regulates Mortgages in the UK?
Knowing all there is to know about mortgages is never easy. A bit like a rubix cube, once you think you’ve got it, you turn another corner and you’re presented with another puzzle to solve… In the property world, what a mortgage is and who regulates them can come under this umbrella. But fear not, we’re going to tell you all about who is behind mortgage regulations in the UK.
A brief history:
For those who aren’t sure what a mortgage is, it is basically where a bank or building society lends money to a borrower at interest in exchange for the title of the borrower’s property. Then, once the borrower has paid off the money owed to the lender, they will retain the full title of their property. In simple terms, the bank or building society gives you a loan & charges interest but as the loan is secured against your home until you make the final payment & owe the bank no more money on the loan the bank hold a charge over your property. This means that, if you ever stop making your monthly mortgage payments the bank could ultimately force you to sell the property so that they can get their money back. May sound scary but, this is how car loans work. Because banks & building societies have this authority there needs to be regulation in place to ensure customers are being treated fairly.
In the 21st century, getting a mortgage seems like commonplace for a lot of people over the age of 25 in the UK, doesn’t it? Truth is it wasn’t always this way. Homeownership used to be something that only the higher classes and aristocracy could aspire to, dating back to the 19th century.
However, the developing importance and influence of building societies and banks meant that homeownership became increasingly viable for the middle and working classes. Banks and building societies are traditional mortgage lenders in the UK who lend varying mortgage sums.
Now members of classes that would have previously not have been able to afford a home or even understand what a mortgage is are now able to buy their own homes. Currently, around 63% of English households now own the home they live, a significant increase in comparison to the 19th century.
But who regulates them? Banks and building societies have always been closely regulated. However, it wasn’t until 2004 that they were regulated by statute. Statute is basically government legislation that would in this instance look over how banks and building societies administer mortgages.
Modern day mortgage regulation:
In the modern day there are two main parts to mortgage regulation:
The first is the Financial Conduct Authority (FCA). This regulates all home-owner mortgages and lifetime mortgages which include equity release to older borrowers. However, the FCA does not regulate buy-to-let mortgages. But what does the FCA do exactly?
The FCA has been tasked with regulating the provision of financial services and the delivery of the mortgage market review. We’re guessing this all sounds like a bit of a whirlwind at the moment, especially if you’ve only just got to grips with what a mortgage is…
The Mortgage Market Review is basically a mechanism for cracking down on poor lending services by building societies and banks. This means that they will require stricter affordability checks, higher qualifications of sales staff and revise the rules around interest-only mortgages. The important thing for you to remember here is that this will be for your benefit. After all it is essentially put in place to help ensure that you are not taken advantage of in the property market.
The second is called the Prudential Regulation Authority. These basically determine the amount of money that lenders need to hold enough capital where they can lend money and have risk controls in place should the borrower not repay their funds. Their role then extends to overseeing the activity of banks and building societies so that the PRA can step in should they not be run sufficiently.
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