Financial Services Authority publishes proposals on responsible mortgage lending

The UK’s Financial Services Authority (FSA) has on 13th July 2010 published its Consultation Paper 10/16 – Mortgage Market Review: Responsible Lending, setting out its proposals which aim “to ensure all mortgages are carefully assessed to make sure borrowers can afford them.”

Research carried out by the regulator indicates an increasing share of interest-only mortgages and that almost 50% of all new mortgages between 2007 and Q1/2010 were provided without customers having to verify their income. It also presents analysis pointing towards 46% of households either having no money left, or a shortfall after mortgage payments and living costs were deducted from their income.

Lesley Titcomb, FSA director responsible for the mortgage market is quoted saying that “there is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.”

New rules are proposed in the area of arrears charges and affordability assessments, including income verification, assessing expenditure, taking account of increasing interest rates, and protecting credit-impaired consumers.

The publication forms part of a major review by the FSA into the UK mortgage market and the regulator is now seeking feedback from stakeholders until 30 September 2010 (for questions on interest-only mortgages and non-banks) and 16 November 2010 (for all other questions).

After a follow-up with a further Mortgage Market Review consultation on distribution and disclosure issues, the FSA aims to publish a policy statement for the Responsible Lending Consultation Paper in the Q1/2011.

Click here for more information and the complete Consultation Paper