FSA plans for tighter mortgage lending rules

The Momentum UK Team 20 December 2011

The Financial Services Authority (FSA) regulator has laid out new rules to prevent risky mortgage lending which could be in place by 2013.

The significantly amended proposals hope to encourage a return to 'common sense standards' to stop people borrowing more than they can afford.

Lenders will be forced to adequately check each applicant's realistic ability to repay their mortgage by verifying the income of every borrower.

The Mortgage Market Review hopes to prevent irresponsible lending practices of the early part of the last decade which included the sale of mortgages in the hope that house prices would rise. These borrowers are now experiencing high levels of arrears and repossessions, particularly those who had a high loan to value (LTV) mortgage - where little or no deposit was laid down.

The aim is to avoid this by insisting that borrowers of all levels receive the right information and advice.

The core proposals ask lenders to assess a mortgage application with the following factors in mind:

Existing borrowers will be unaffected but lenders will have to provide the option for new mortgages for those who do not meet the new affordability requirements. In addition, applicants with poor credit history and those trying to consolidate debts with a mortgage will have to receive advice to ensure they understand the full implications and costs.

Lord Turner, chairman of the FSA, said: "We believe these proposals will hardwire common sense standards into mortgage lending and guard against the risky lending practices of the past - leaving most borrowers unaffected, but better protected."

Despite some borrowers voicing concerns that the new rules would exacerbate problems for first time buyers, Paul Smee, director general of the Council of Mortgage Lenders said the new version of the FSA's rules was "workable and appropriate".

"The FSA's new proposals seem to strike broadly the right balance," he said.

The FSA Board will consult consumers, industry and all interested parties about the new proposals. A decision on the final rules will be made in summer 2012, following consultation, but will not be implemented before 2013.