New FSA Rules On Mortgage Lending | Housing Market News

LONDON October 19th 2009-The new Financial Services Authority guides on mortgage lending will insist that lenders concentrate on a clients ability to pay and ban self-certification mortgages.

The FSA says all mortgage applications should require the lender to verify income.

Melanie Bien from broker Savills Private Finance says those who are self-employed may have to delay applying for a mortgage until they can meet the criteria demanded by lenders offering mainstream loans. She adds: "To prove your income for a mainstream loan you must have two years or more of accounts or 'SA302', the tax calculation from your self-assessment form. You can no longer provide an accountant's reference as verification of income, unless you are applying for a mortgage with Abbey."

You won't be thrown off your current mortgage. In many cases these deals will eventually revert to an ongoing tracker or standard variable rate once the initial fixed rate or discounted period ends. "It's not like you'll be left without any mortgage," David Hollingworth at broker London & Country says.

Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
Banning ‘self-cert’ mortgages through required verification of borrowers’ income;
Banning the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk;
Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears;
Requiring all mortgage advisers to be personally accountable to the FSA;
Calling for the FSA’s scope to cover buy-to-let and all lending secured on a home.

The biggest change would be FSA-directed limits on loan sizes and affordability.

Jon Pain, FSA managing director of supervision, said: "The FSA needs to ensure that firms only lend to people who can afford to pay the money back.

“The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."

A key overall aim of the review is that “costs and risks of lending and borrowing are kept within the market and are not borne by wider society.”

The report finds high loan-to-value (LTV) and loan-to-income (LTI) are not in themselves problematic – but the era of cheap credit led to lending to riskier groups.

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