The UK Financial Services Authority (FSA) watchdog has put forward proposals designed to curb excessive mortgage lending.
The FSA says it is “adamant” that new rules will include a ban on lending without proof of income.
It says it wants to ensure that lenders lend only to those who can afford it – and that means having knowledge of a borrower’s financial situation.
That would, in effect, ban self certification mortgages.
The FSA says these types of home loans, in which borrowers simply state their income without having to prove it, were still accounting for 43% of all mortgages in the first quarter of this year. It said it wanted to ensure that lenders got “back to the basics of responsible lending”.
It wants to prevent people falling into debt through their eagerness to buy a property.
The FSA found that almost half of households either had no money left or had a shortfall after they had paid their monthly mortgage bill and deducted living costs from their income.
It also said the proposed rules would offer extra protection for vulnerable customers with poor credit ratings.
“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,” said Lesley Titcomb of the FSA.
The proposals form part of a review of the UK mortgage market undertaken by the FSA, which has looked at the causes of arrears and repossessions over the past five years.
The share of interest only mortgages had also been increasing, the watchdog said, with some mortgage holders having no plan on how to repay the capital loan.
The FSA is inviting further comment from industry groups and consumers on its proposals until 16 November this year and will bring in new rules in early 2011- but it has said it is determined that proof of income will form part of these.
