Borrowers face tighter mortgage application conditions under new reforms

Millions of potential borrowers could be refused a mortgage under new reforms proposed by the industry watchdog.

The Financial Services Authority (FSA) has announced a series of reforms calling for tough restrictions to prevent irresponsible lending.

The new proposals will see potential borrowers proving their repayment credibility, providing evidence including household bills, clothing and childcare costs, before being granted a loan.

Under the new regulations, mortgages should only be granted where there is a reasonable change of repayment on behalf of the borrower. Many lenders offered mortgages on the assumption that house prices were set to increase. As house prices have continued to fall since 2007, many homeowners are currently living in negative equity and struggling to pay off a large mortgage.

As a result, the FSA has proposed the mortgage market shake-up to prevent such reckless lending from happening again. However, the UK is currently experiencing a housing crisis with millions being unable to afford a home due to tighter lending rules.

These new tough restrictions may further diminish the potential chances of securing a mortgage for many borrowers.

The FSA suggests that lenders must verify incomes and be able to demonstrate that the mortgage is genuinely affordable for the borrower. Lenders must take into account the borrowerís basic household expenditure as well as their committed expenditure.

Anything that gives consumers a basic quality of life will be valued and this includes items such as clothing, household and personal goods along with basic recreation and childcare.

CML Director General Paul Smee welcomes the proposals; “Lending needs to be responsible and done in a way which protects consumers. Rules need to be practical and avoid unintended consequences.î

ìIf lenders are to make their contribution to improving the supply of housing and to the wider agenda for economic growth, then they need a regulatory framework which also supports that objective.î

The new regulations will not affect existing mortgage holders.

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