Easy Mortgages days are over, reports London Mortgage Brokers, London Mortgage Advice Friday, 16th July 2010

With the idea of bringing in new rules the FSA has laid out plans to halt the reckless lending that has seen half of mortgages dished out without checks that borrowers can actually repay them.

The Financial Services Authority wants lenders to impose tougher new affordability checks on all borrowers, in a move that would sound the death knell for self-cert mortgages and make securing cheap interest-only loans much harder.


As this was found to be the biggest warning sign that borrowers may in future fail to meet their mortgage payments, it will also require lenders to take far more care when assessing those with a poor credit history,
But it also said that borrowers need to take more responsibility and stop chasing bigger mortgages at all costs.

Whilst they would still be able to push through low risk borrowers on the proviso that they then passed affordability checks, mortgage brokers and lenders have argued that a crackdown would also effectively kill off fast-track mortgage applications.

Following the credit crunch, the watchdog's inquest into the mortgage market has revealed that at the tail end of the boom in 2008, 52% of mortgages were issued without lenders checking up on borrowers' income. Even now this figure stands at 43%.

With three-quarters of those borrowers seemingly simply relying on their property rising in value to eventually pay them off,
this problem has been compounded by the rise of interest-only mortgages, which reached 30% of all loans.

However, that being said,the FSA said it had no plans to ban high loan-to-value mortgages,
'When you get to high loan-to-value, there can be an increase in the levels of default but nowhere near as important as a credit impaired status of a borrower,' said the FSA's Ms Titcomb. 'We want to get back to responsible lending and borrowing.'

The FSA said its key proposals were:

• Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay;
• Requiring verification of borrowers' income in every case to prevent over inflation of income and to prevent mortgage fraud;
• Extra protection for vulnerable customers with a credit-impaired history.