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FSA to restrict mortgage lending


Tuesday July 13th 2010

Potential mortgage borrowers will have to prove they can afford home loans under new proposals from the Financial Services Authority, it has been announced.

The City watchdog wants lenders to carry out affordability checks on borrowers before they advance them a mortgage.

Lenders should get "back to the basics" of responsible lending, the FSA said.

Borrowers will be required to provide proof of their income from an independent source, while self-certification and fast-track mortgages could be banned altogether.

The regulator stopped short of setting out exactly what affordability criteria lenders must use, saying they may decide to carry out a "line-by-line" assessment of an applicant's outgoings, or they could use statistical data or their own expenditure models.

But affordability must be based on a repayment mortgage, rather than an interest-only one, while it must take account of future interest rate rises and be based on a 25-year mortgage term, even if the loan is being taken out over a longer period.

Lesley Titcomb, FSA director responsible for the mortgage market, said: "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 to pay it back."

Copyright © Press Association 2010

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