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FSA makes new proposals to ensure affordable mortgage payments

Authority aiming for a return to responsible lending practices.

The Financial Services Authority (FSA) has outlined new proposals to make sure borrowers can afford mortgage payments. The proposed changes are aimed at ensuring all lenders get back to the basics of responsible lending and to prevent problems getting out of control.

According to the FSA, the proposals include imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay; requiring verification of borrowers' income in every case to prevent inflation of income and to prevent mortgage fraud. There are also measures offering extra protection for vulnerable customers with a credit-impaired history.

The FSA said that the proposals, published in a consultation paper, form part of its major review into the UK mortgage market and are based on detailed analysis of past lending decisions, looking at the causes of arrears and repossessions since 2005.

They found that 46% of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income and almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

The share of interest-only mortgages has also been increasing. At the peak of the market, over 30% of all mortgages were interest-only; many consumers with no repayment vehicle count on future house price rises to repay their mortgage and some have no plan at all and borrowers with a credit-impaired history are particularly vulnerable.

FSA added that the mortgage rules require arrears charges to be based on a reasonable estimate of the cost of the additional administration required as a result of the customer being in arrears.

Lesley Titcomb, director responsible for the mortgage market at FSA, said: "There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.

"While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers."

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.