Imagine if in America new homebuyers have to answer questions on alcohol and cigarettes to qualify for a new mortgage loan. How would Americans respond? In the UK, home buyers may be faced questions regarding how much money they spend on alcohol and cigarettes each month as a requirement to obtain a new mortgage. This is due to the new rules to determine people’s reckless lending.
According to the Financial Services Authority, lenders are not rigorous enough when it comes to obtaining detail information of their potential borrowers finances. They said that lenders should find out deeper regarding the spending habit of potential borrowers. Questions such as ‘how much do you spend on alcohol, tobacco, shoes every month’ and so on will be likely to be asked when somebody applies for a new mortgage.
Both the UK and the US have their own technical way to assess somebody’s creditworthiness. In the US the credit score is used to evaluate the potential risks of lending money to somebody. In the UK, something similar is regulated under the FSA. Although the credit score in the US would probably be considered enough to represent one’s habit and discipline in repaying loans, it may also be a good idea to have additional assessment to measure one’s spending habit.
Currently the FSA in the UK does not really have any rules for lenders to assess the ability of consumers to repay a mortgage. In its document, the City regulator said: “There is clearly a responsibility on all lenders to extend credit only where a consumer can afford it and, in our view, a robust assessment of both income and expenditure is key to ensuring affordable mortgages.”
It would probably be a good idea to try and implement this in the US. Maybe stimulating the economy by enabling people to get a mortgage loan and modify them is not the best option as far as the borrowers’ financial and spending habit is concerned. No matter how easy it can be to get a mortgage or to have a modified loan, if somebody’s spending habit is a mess, it will not much help the person’s finances and -in the end- the overall US economy.
So, should detailed questions regarding one’s spending habit be asked in applying a mortgage loan? I would say I’ll have to agree.
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