FSA outlines its crackdown on mortgages

CITY watchdog the Financial Services Authority (FSA) has unveiled a crackdown on the mortgage-lending market that includes plans to ban the self-certification loan industry.<br /><br />FSA chief executive Hector Sants unveiled a range of proposals including a ban on the self-cert, or &ldquo;liar loans&rdquo; industry, where borrowers are able to get mortgages without giving proof of their income. <br /><br />He proposed new rules forcing lenders to closely vet all mortgage applicants before handing out loans. The plans &ndash; which reflect the FSA&rsquo;s increasingly hands-on approach after it was criticised in the aftermath of the credit crunch &ndash; also call for the regulator&rsquo;s scope to extend to buy-to-let mortgages. <br /><br />But, Sants has stopped short of capping loan-to-property price ratios, meaning lenders will still be able to issue 100 per cent mortgages.<br /><br />The crackdown comes after a bubble in housing prices caused by excessive mortgage lending collapsed in 2007.<br /><br />The British Bankers&rsquo; Association said: &ldquo;Any new rules must not serve to create unreasonable obstacles either for lenders or for borrowers.&rdquo;<br /><br />Building Societies Association head of mortgage policy Paul Broadhead expressed &ldquo;significant reservations&rdquo;.<br /><br />&ldquo;We need a sensible balance between appropriate regulation and allowing people to buy their own home when they can afford to do so,&rdquo; he said. <br /><br />Robert Sinclair, director of the Association of Mortgage Intermediaries, criticised the self-cert ban, saying the products were &ldquo;right for some people&rdquo;.<br /><br />And Liberal Democrat Treasury spokesman Vince Cable said: &ldquo;With such a complex mortgage market already in existence highly prescriptive rules for mortgage affordability are not appropriate.&rdquo;<br /><strong><br />AT A GLANCE: MORTGAGE MARKET REVIEW<br /><br />WHAT TYPE OF FIRMS WILL BE AFFECTED?</strong><br />&9679; Building societies, mortgage lenders, financial advisers, mortgage arrangers and mortgage administrators could all be affected<br /><br /><strong>WHAT IS IN THE PROPOSALS THAT COULD AFFECT HOW THESE FIRMS DO BUSINESS?</strong><br />&9679; A ban on self-certification and a requirement for income verification for all mortgages<br />&9679; A rule making lenders ultimately responsible for affordability assessments<br />&9679; A prescription for the affordability assessments which lenders must make <br />&9679; Rules insisting that the affordability of interest-only mortgages be assessed on a capital-<br />repayment basis<br />&9679; Rules prohibiting loans being made to consumers who have low borrowing capacity<br />&9679; Rules prohibiting loans that offer a mix of high-risk characteristics<br />&9679; A boost of the FSA&rsquo;s arrears rules and ban on some of the existing unfair charging practices<br />&9679; An extension of the Approved Persons regime<br />&9679; Plans to focus more on early disclosure of key service information in the FSA&rsquo;s disclosure rules <br />&9679; An extension of regulation covering the buy-to-let market<br /><br /><strong>WILL THE FSA CAP LOAN-TO-VALUE LEVELS?</strong><br />&9679; No, there will be no rules preventing mortgages where lenders lend the entire value of a house &ndash; or even more &ndash; to customers <br />Will the proposals hit house prices?<br />&9679; It is possible. By limiting the number of people who can get the credit to join the housing market, the FSAcould damage demand<br /><br /><strong>WHY IS THE FSA REVAMPING THE RULES?</strong><br />&9679; Its previous approach to lending rules has been blamed for the excessive mortgage lending that contributed to the recent property market crash <br /><br /><strong>WHAT SHOULD I DO NEXT?</strong><br />&9679; The FSAis calling for a &ldquo;wide-ranging debate&rdquo; to inform its thinking on mortgages and you can respond online on the FSAwebsite. <br />&9679; Itis also hosting roadshows on the mortgage review, with the opportunity to offer feedback