You may have read that lenders are tightened up their criteria following guidance issued by the FSA. For example there has been a greater restriction on ‘interest only mortgages’ because the FSA believes that lenders should be stricter to prevent buyers taking on debts they cannot afford!
Here is a recent example from one of our clients; the gentleman is worth several millions and is now just shy of being 60. His income is around a three quarters of a million pounds per year and he wanted to participate in a joint mortgage with a relative where the loan to value ratio would be 25%.
Unfortunately the high street bank decided that they couldn’t offer the finance required and due to underwriting restrictions recommended by the FSA, they were only prepared to offer a loan of 20%. Due to the age of the borrower and the FSA guidelines they were not prepared to negotiate.
It seems to me that being so regimented and afraid to do anything other than what is written in the guidelines is causing lenders to lose business.
Whilst this example refers to residential mortgages it is pretty clear that the same attitude can be found in business finance transactions.
If you have any similar stories, join the conversation on our blog, we would love to hear your views on lending restrictions.