The Financial Services Authority (FSA) has moved closer to banning self-cert mortgages as it goes for consultation on the mortgage lending market.

After looking at the causes of arrears and repossessions since 2005, tough new proposals will be part of a major review of the UK mortgage market by the FSA

The FSA found that:

• 46% of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income;
• Almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income;
• The share of interest-only mortgages has been increasing. At the peak of the market, over 30% of all mortgages were interest-only;
• Many consumers with no repayment vehicle count on future house price rises or uncertain life events to repay their mortgage and some have no plan at all;
• Borrowers with a credit-impaired history are particularly vulnerable.

The move comes about after a review revealed that in 1997, the height of the boom, 46% of all mortgages issued were done so without the lender confirming the borrower’s income.

Some of the key proposals will include:

• Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay;
• Requiring verification of borrowers' income in every case to prevent over inflation of income and to prevent mortgage fraud;
• Extra protection for vulnerable customers with a credit-impaired history.

The FSA is will be seeking views from consumer groups and the industry, and invites responses by 16 November 2010 to its consultation paper, with an announcement of the outcome being made in early 2011.

DebtWizard comment

For many years I have seen too many people using in excess of 40% of their take home pay to cover the mortgage.  I have also seen a steady increase in the number of families switching from repayment to interest only in an attempt to free up spare money.

It was obvious that this could not continue and the FSA are right to put the onus on lenders to ensure that the borrower has the means to repay taking into account also any fluctuation in  future interest rates.

My concern is for those innocent self-employed who previously maintained an excellent repayment record, proved income and their ability to repay, but who may now get caught up, through no fault of their own, and find it more difficult to get a re-mortgage.

We are sitting on a repossession time bomb with so many people just waiting for the honeymoon to end as they pay just above base rate on a tracker mortgage.

With many economists predicting the real possibility of looming interest rate increases which if correct, vulnerable borrowers will see their mortgage repayments rocket to uncontrollable levels resulting in eventual repossession.  I fear we have many more months, if not years, of pain and misery for countless house owners.