FSA to outlaw self-certification mortgages

19th Oct 2009 09:17

Self-certification mortgages are for the scrap-heap, the Financial Services Authority said Monday, as it proposed a shake-up of mortgage regulations.The Financial Services Authority (FSA) said the onus of verifying affordability when a mortgage application is considered should be on the lender, with mortgage lenders required to return to the traditional method of calculating the free disposable income a borrower would have to repay a mortgage.Such affordability tests should be mandatory, the FSA said in its long awaited mortgage market review discussion paper.'The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms,' said Jon Pain, managing director of the FSA.The FSA has also proposed banning the sale of products which contain certain 'toxic combinations' of characteristics that put buyers at risk, such as high loan-to-income deals offered to borrowers who have bad debt histories.New proposals to be published in January will also take a harder line on the rules for handling mortgage arrears, with administration charges and early redemption charges on arrears clearance under the microscope.The regulatory body also wants all mortgage advisers to be personally accountable to the FSA in a move that would see the body's Approved Persons regime extended to cover mortgage advisers who deal with consumers and to advisers or arrangers who are responsible for overseeing compliance.'The proposals are designed to tackle the problems identified while maintaining a vibrant and sustainable market, but the FSA has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income,' Pain said.