New plans for home buyers reports London Mortgage Broker, London Mortgage Advice Tuesday, 27th October 2009

Under new plans published by the Financial Services Authority (FSA), all borrowers will face stricter scrutiny of their mortgage applications .

Of the proposals the most central is a ban on self-certified mortgages, which do not require borrowers to prove their income.

If these proposals had been in force previously, some of those who had been given home loans at the height of the housing boom would not have been able to obtain them

And consequently this poses the question as to whether people borrowed much more than they could ever afford, and whether lenders were irresponsible in granting those loans.

The FSA have stated that they believe that irresponsible borrowing has been just as much a part of the problem in the mortgage market as irresponsible behaviour by firms.

So the FSA has made suggestions aimed at preventing people getting in the same mess again.

Under the plan, lenders would have to verify every borrower's income. This could be a problem for some self-employed borrowers, who might have overstated their income. When it comes to remortgaging, the lender might no longer agree to lend to them, or the borrower might be left to pay the standard variable rate. Self-certified mortgages accounted for 49% of home loans being offered at the peak of the housing boom, but the market has dwindled as a result of the credit crunch. Only two lenders were offering these types of loans in August 2009.

For salaried boorowers it is proposed to require all lenders to assess the level of a consumer's expenditure in determining the affordability of a mortgage product, to ensure that lending decisions are based on a consumer's free disposable income. Lenders will be obliged to check what the would-be borrower tells them about their spending habits; they will not be allowed to take everything they are told at face value.