FSA to get tough on mortgage market

Covered mag, presented by Gocompare.com
  • | by Kristian Dando
The Financial Services Authority (FSA)  has revealed a raft of proposed measures for mortgage providers, intended to prevent the “irresponsible” excesses of the pre-financial crisis market. Lenders will now have to conduct far more rigorous checks on borrower’s finances before a loan is granted. FSA chairman Lord Turner said: "While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return." He continued: “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." The proposed measures include the following: - A borrower's income will have to be verified in every mortgage application. - Lenders do not have to consider in detail what borrowers spend but cannot ignore  unavoidable bills, such as heating and council tax. -Interest-only mortgages could still be offered as long as borrowers have a credible plan to repay the money. - Lenders will have to consider the impact of increases in interest rates in line with current market expectations. - Some applicants, such as those trying to consolidate debts with a mortgage, will have to get advice to ensure they understand the full implications and costs. - Existing borrowers will be unaffected and lenders will have the flexibility to provide new mortgages to some existing customers even where they do not meet the new affordability requirements. The Council of Mortgage Lenders (CML) welcomed the proposals and gave qualified support to the revised package of proposed reforms. CML director general Paul Smee said: "Lending needs to be responsible and done in a way which protects consumers. Rules need to be practical and avoid unintended consequences. Whilst there is much detail to be pored over, the FSA's new proposals seem to strike broadly the right balance.”