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FSA proposes new mortgage borrowing rules

FSA proposes new mortgage borrowing rules

Category: Mortgages

Updated: 13/07/2010
First Published: 13/07/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
New proposals aimed at ensuring all mortgages are carefully assessed by lenders to make sure borrowers can afford them have been put forward by the Financial Services Authority (FSA).

The regulator said it wants to ensure all lenders get back to the basics of responsible lending and that problems are prevented before they can develop or get out of control.

Amongst the proposals put forward, the FSA wants to impose affordability tests for all mortgages and make lenders ultimately responsible for assessing a consumer's ability to pay.

It also wants borrowers' income levels to be verified for all mortgage applications in order to prevent people exaggerating their income and to prevent mortgage fraud.

Extra protection for vulnerable customers with a credit-impaired history could also be introduced.

The tough new proposals form part of a major review by the FSA into the UK mortgage market and are based on detailed analysis of past lending decisions, looking at the causes of arrears and repossessions since 2005.

During its review, the regulator found that almost half of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income.

It also discovered that almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

"There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back," said Lesley Titcomb, FSA Director Responsible for the Mortgage Market.

"While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers."

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