ERS will not face mandatory limits on how much they can lend to house-buyers, the Financial Services Authority (FSA) announced today, but will be expected to use more “common sense” when issuing mortgages.
Draft rules out this morning argue that too many risky loans were made on the basis that house prices would always rise, and banks should never again become so complacent.
In late 2008 and early 2009, over half of all mortgages – and almost 20 per cent of those with a loan to value ratio of more than 95 per cent – were given with no income verification.
The FSA will ban this, but issue wider guidance rather than hard rules on lending levels.
“The new regulations appear to have struck a reasonable balance between allowing lenders flexibility when assessing affordability, whilst maintaining a sensible level of consumer protection,” said Paul Broadhead from the Building Societies Association.
The proposals also require lenders to take into account the possibility of future interest rate rises when judging whether or not borrowers will be able to pay back their debts, and to contact borrowers mid-term to check on them.