FSA unveils new mortgage lending rules

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by Kay Murchie

The Financial Services Authority (FSA) has today revealed a shake-up in lending which will see affordability tests for all mortgages and making lenders legally responsible for loans that cannot be repaid.

Under new proposals, the FSA will force banks and other lenders to conduct thorough checks on applicant’s incomes before granting a mortgage, which will include existing loans and a consumer’s spending habits.

As a result, self-certified mortgages will be banned - these types of mortgages do not require consumers to prove their income.

The overhaul is aimed at “returning to responsible lending”, according to City Minister Lord Myners.

The new measures are likely to crackdown on companies who force loans or credit cards on consumers without having been requested to do so.

Commenting on the new set of proposals, Prime Minister Gordon Brown said the public would be protected by the new tougher rules.

“Never again should banks and credit card companies encourage you to borrow more than you can realistically afford to repay,” the PM said in a webcast on the Downing Street website.

However, the measures were met with caution by director-general of the Council of Mortgage Lenders, Michael Coogan, who said: “The FSA faces a number of challenges and potential pitfalls in progressing its review too quickly.

“Perhaps the biggest of all is to resist external pressure to implement measures at a time when the mortgage market has self-corrected many of the past problems, but is still not functioning effectively,” added Mr Coogan.

A deadline for discussion on the proposals has been set for the end of January 2010, with a statement to follow in March.