FSA proposes “major reforms” to UK mortgage market

by Gill Montia

Story link: FSA proposes “major reforms” to UK mortgage market

The Financial Services Authority (FSA) has today set out proposals that amount to “major reforms” of the UK mortgage market.

The proposed new measures follow a market review by the regulator and are aimed at ensuring mortgage lending works well for consumers and is “sustainable” for lenders and borrowers alike.

According to the FSA, the proposals reflect “a more intrusive and interventionist style of regulation”. Key features include:

Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;

Banning “self-cert” mortgages; verification of borrowers’ income will in future be required;

Banning the sale of products which contain certain “toxic combinations” of characteristics that put borrowers at risk;

Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears;

Requiring all mortgage advisers to be personally accountable to the FSA;

The proposals also call for the FSA’s remit to include buy-to-let and all lending secured on a home.

Summing up the review, the regulator’s managing director of supervision, Jon Pain, says it “clearly shows a rapid explosion in mortgage products”.

This included “the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end”.

He adds: “The FSA has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.”

A deadline for discussion has been set on 30th January 2010 with a statement to follow in March.

The regulator intends to phase in implementation, with areas of “high detriment” such as arrears, taking priority.