Mortgage affordability test planned
13th July 2010
Borrowers will face affordability checks to ensure they can cover repayments and other outgoings such as home insurance before getting a mortgage, the City watchdog has proposed.
The shake-up is aimed at pressing lenders to get "back to the basics" of lending responsibly, the Financial Services Authority (FSA) said.
Borrowers will have to produce proof of income from an independent source, effectively spelling the end for self-certification and fast-track mortgages.
Lenders will be left to determine the criteria of the affordability checks, with the FSA only outlining possible options such as "line-by-line" assessments of applicants' spending, statistical data or their own expenditure models.
Searching for cheap home insurance would be one of the ways applicants could keep their monthly outgoings as low as possible to prove they can afford the mortgage.
The affordability test must be based on a repayment (not interest-only) mortgage over a 25-year term, irrespective of the length of the deal applied for, and also take account of potential interest rate increases.
Lesley Titcomb, FSA director responsible for the mortgage market, said: "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."
Copyright © Press Association 2010
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