Mortgage lenders’ responsibilities redefined

The Financial Services Authority (FSA) wants lenders to revisit responsible lending and make sure borrowers can afford their mortgages.

The regulator has published a set of proposals that include imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay.

Banks and building societies will also be required to verify a borrower’s income in every case, to prevent over inflation of income and mortgage fraud.

The proposals are backed by research into the causes of arrears and repossessions since 2005, revealing that:

Forty-six per cent of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income.

Almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

The share of interest-only mortgages increased to over 30% at the peak of the housing market, with many borrowers having no repayment vehicle in place.

FSA director responsible for the mortgage market, Lesley Titcomb, comments: “While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

A consultation on the proposed new measures is now under way, closing on 16th November 2010.

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