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October 19, 2009    

“Major reforms” in hand for UK mortgage lending

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by Gill Montia

The Financial Services Authority (FSA) has today set out “major reforms” that it intends to impose on UK mortgage lending.

The proposed new measures are aimed at making the market “sustainable” for lenders and borrowers and reflect “a more intrusive and interventionist style of regulation”.

Key features include imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay.

In this respect, mortgage advisers would be personally accountable to the FSA for the deals they arrange.

“Self-cert” mortgages would be banned, as would the sale of loans which contain certain “toxic combinations” of characteristics that put borrowers at risk.

As a result, loans to credit-impaired borrowers that are also at high loan-to-income could also be outlawed.

On arrears, the regulator has declared that lenders should not profit where a borrower is adhering to an agreed repayment plan, and is therefore proposing to ban arrears charges in these cases.

A deadline for discussion on the proposed measures has been set for 30th January 2010 with a statement to follow in March.

The FSA says it intends to phase in implementation, with areas of “high detriment” such as arrears, taking priority.

Specific proposals on arrears handling will be published in January.

Furthermore, the regulator has not ruled out further intervention, such as caps on loan-to-income and loan-to-debt ratios, in future.

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