FSA announces mortgage reforms

Posted: 19 Dec 2011 12:40:16 GMT

The FSA is hoping the measures will prevent a return of risky mortgage dealing.

A number of mortgage reforms have been announced by the Financial Services Authority (FSA) that are aimed at preventing a return to risky home loan lending.

In its Mortgage Market Review, the organisation claimed it is to introduce common sense standards in the sector.

The group said the changes come in response to previous irresponsible lending that resulted in borrowers taking on home loans that were only affordable due to the presumption that house prices would carry on rising indefinitely.

Many of the people who agree to these deals are now struggling to keep hold of their dwelling as they find it difficult to keep up the mortgage repayments.

As part of the new initiative, prospective borrowers are to be given the correct information at the right time, with provider's ensuring the arrangements are suited to customers who will have the means to pay back what they owe on time.

Lord Turner, chairman of the FSA - which takes its powers from the Financial Services and Markets Act 2000 - said: "We believe that these are common sense proposals which serve the interests of both lenders and borrowers."

The industry figure pointed out: "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 future when memories of the crisis recede and the dangers of poor practice return."

A number of key features make up the new proposals, including the condition that all income needs to be verified during every application.

In addition, lenders need to take into account unavoidable bills such as council tax and heating, while the impact any rises in interest rates has on the deals must also be considered.

Interest-only home loans can also be considered on the promise that those borrowing the money have a credible plan in order to pay back the capital.
 

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