The FSA yesterday proposed some new measures that they hope will reduce excessive mortgage lending. The Authority wants to make mortgage lenders responsible for assessing whether a consumer is able to repay their contractor mortgage.

In order to achieve this, lenders will be required to verify a mortgage applicant’s income. By imposing this condition the FSA hopes to reduce excessive mortgage lending and prevent fraud.
Between 2007 and Q1 of 2010, nearly 50% of new mortgages were granted without the lender verifying the borrower’s income.

The FSA said in a statement that it hoped the changes would help lenders become more responsible and that problems are prevented before they have the chance to develop.

According to a review of the UK mortgage market by the financial watchdog, 46% of UK households currently have no money left, or suffer a shortfall, after their mortgage repayments and living costs have been deducted from their income.

Mortgage market director Lesley Titcomb from the FSA pointed out that there was a clear link between overstretched finances and mortgage arrears and house repossessions. She said that the Authority is particularly keen to protect consumers who are vulnerable by ensuring that everybody who takes out a home loan has the means to repay it.

Michael Coogan, the director general of the CML, believes that these regulatory requirements are not necessary and that the only affect will be to impose further costs on housing market lenders and these costs will be passed on to consumers.

He said the CML looks forward to working with the FSA to make sure there are no negative side-effects from these regulations.

Meanwhile, research from the BBA shows that the majority of mortgages are granted by the high street banks. Around 35,000 mortgages are approved each month and in May the banks were responsible for 75% of all the new housing loans.

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