FSA edges backwards on responsible lending requirements in the mortgage market

The Financial Services Authority (FSA) has published a new set of proposed responsible lending requirements for consultation as part of its Mortgage Market Review, following considerable pressure from the industry not to require them to make a full assessment of borrower affordability.

Although the borrower's income will have to be verified in every mortgage application, under the new proposals lenders will not have to consider expenditure in detail although they should not ignore unavoidable bills, such as heating and council tax.

Other keay features of the proposals include:

• Interest-only mortgages can still be offered as long as borrowers have a credible plan to repay the capital. But relying on hopes of rising property values is not enough
• Lenders will have to consider the impact of increases in interest rates in line with current market expectations
• Some applicants, such as those trying to consolidate debts with a mortgage, will have to get advice to ensure they understand the full implications and costs; and
• Existing borrowers will be unaffected and lenders will have the flexibility to provide new mortgages to some existing customers even where they do not meet the new affordability requirements.

The FSA is now encouraging consumers, industry and all other interested parties to give their opinions on this new, full, set of proposals as well as on the accompanying cost benefit analysis. Following consultation, the FSA Board will make a decision on the final form of rules in summer 2012, but implementation will not be before 2013.

The consultation is open until March 30 2012, and the consultation document is available here.