In the past homeowners have been able to bank on rising house prices as a means for releasing capital from their property which could then be used for home improvements, paying off debts or even going on holiday, but it now looks as if this will become more difficult  under new rules. These rules will be much stricter over who is allowed to take out equity and will ensure those doing so can afford to make the new repayments.

These new measures are being introduced by the Financial Services Authority and will come into effect from 2013. Anyone applying for a loan to release some of their homes equity will have to give in depth information as to their household spending, childcare costs and fuel costs, and this is just part of a raft of new measures due to be introduced by the FSA in order to prevent irresponsible lending. During the past six years billions of pounds have been released by homeowners re-mortgaging and increasing their loans.

At the peak of the property boom around £155 billion was borrowed from banks and building societies for spending on items other than housing and even last year saw 45,000 homeowners taking out bigger loans in order to pay off debts. According to the FSA, people consolidating their debts in this way are more likely to struggle to pay back their loans than others, and it estimates that 1.8 million homeowners have missed at least one repayment on the past. The FSA doesn’t intend to prevent people from releasing capital, but does want more control over how vulnerable customers are assessed.