New plans for borrowers

Stricter scrutiny of mortgage applications

All borrowers will face stricter scrutiny of their mortgage applications under new plans published by the Financial Services Authority (FSA). At the heart of these proposals is a ban on self-certified mortgages, which do not require borrowers to prove their income.

The FSA's chief executive, Hector Sants said:

“Some of those who had been given home loans at the height of the housing boom would not have been able to obtain them if these proposals had been in force.

The financial crisis has had a dizzying effect on the UK economy, including the £1.23 trillion residential mortgage market. Some borrowers have been able to ride out the crisis, but others have faced severe difficulty making mortgage repayments. The situation could have been even worse if interest rates were not at a historic low.

This raised questions as to whether people borrowed much more than they could ever afford, and whether lenders were irresponsible in granting those loans.

"We believe that irresponsible borrowing has been just as much a part of the problem in the mortgage market as irresponsible behaviour by firms.”

The FSA review said:

"Most consumers, of course, have acted responsibly, but a significant minority have made decisions which were imprudent and which they should have been in a position to recognise as such in advance."