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Stricter tests ahead for mortgage borrowers

Sweeping new rules released on Monday by the Financial Services Authority (FSA) have stated that mortgage borrowers will have to prove their income and provide a detailed breakdown of their spending habits if they are to qualify for loans.

As part of a sweeping review into the mortgage market the city regulator banned ‘self-certification’ loans, which have previously allowed about 1millions borrowers to take out mortgages, without previously proving their income.

The aim is to introduce ‘affordability tests’, which examines borrowers’ disposable income after bills, other debt commitments and spending on miscellaneous things such as holidays and alcohol expenditure.

For borrowers this review is likely to draw an end to the era of cheap and easy credit that saw billions of pounds worth of loans provided to customers that have little proven capacity to repay. The ultimate aim of the review is to ensure that banks lend money only to people who can pay it back. The regulator also called for its remit to be expanded to cover buy-to-let mortgages, as it wanted to be more interventionist to protect consumers from themselves.

Source: www.ft.com

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