New mortgage lending rules set out by FSA lambasted

The Financial Services Authority (FSA) wants tough new guidelines to stop a resurgence of excessive and risky mortgage lending.

Lord Turner, chairman of the FSA, said: "While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in the future when memories of the crisis recede and the dangers of poor practice return."

The regulators intend to introduce new rules, which state that lenders must assess the affordability of loans better.

Paul Smee, Director General of the Council of Mortgage Lenders said "the proposals will see prospective buyers ... get the right information and advice, at the right time, and ensure mortgage lenders will be properly checking each applicant's realistic ability to repay their mortgage."

Before approving a mortgage application lenders must now assume that interest rates may rise from their current low levels and must not let borrowers rely on the possibility of rising house prices to claim they can eventually repay.

Initially original proposals by the FSA were 'in danger of locking credit worthy borrowers out of the market', however these guidelines have since evolved.

The proposed new rules will allow interest-only mortgages to still be offered if there is a credible plan, which does not involve a borrower assuming that the rising value of their home will help to repay the loan.

Existing borrowers who already have a loan that might be forbidden under the new rules will not be affected. The FSA said, "Lenders will have the flexibility to provide new mortgages to some existing customers even where they do not meet the new affordability requirements."

Note: We provide news articles for the interest of our visitors, this news article does not reflect the opinions of protection.uk.net or its employees.