Proposals to cut down excessive mortgage lending have been made by the Financial Services Authority (FSA) which will most likely result in a ban on lending without proof of income.
The financial watchdog said that it wants to make sure that loans are only made to those who can afford to repay them, which will mean knowing about the borrower’s income. Effectively, that will mean a ban on self-certification mortgages.
In self-certification mortgages borrowers only have to state their income, but don’t have to prove it. The FSA said that this type of mortgage still accounted for 43 per cent of all mortgages in the first quarter of 2010, adding that it wanted lenders to get “back to the basics of responsible lending”. People’s eagerness to buy a house should not cause them to fall into debt, the FSA stated.
The FSA found that nearly half of households had little or no money left after paying mortgage bills and living costs. The proposed rules, the watchdog claimed, would offer increased protection for those customers with poor credit ratings.
Lesley Titcomb of the FSA told BBC News: ?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 it.?
The FSA has undertaken a review of the UK mortgage market and the new proposals form part of that review. It looked at the causes of arrears and repossessions since 2005. It also said that the number of interest-only mortgages had been on the increase, yet many holders did not know how they were going to pay back the capital loan.
The FSA has invited comment on its review until 16 November 2010, with a plan to bring in new rules in early 2011. It did say, however, that it was determined that proof of income requirements would be brought in.
