The Financial Services Authority (FSA) has tightened rules aimed to stop borrowers taking out mortgages that they can’t afford and prevent previous irresponsible lending.
The administrative changes, which come into force in April 2014, follow a mortgage market review consultation paper published in December that proposed that non-advised sales should be banned in cases where there was any form of “interactive dialogue” between a customer and a lender.
Martin Wheatley, managing director of the FSA, said: “These new rules will help create a more sustainable market that works well for everyone, whether they are a borrower or a lender.”
Wheatley is “very confident” that the rules are “proportionate and sensible, and will create a more sustainable mortgage market where consumers are put at the heart of every decision”.
The measures will ensure that lenders will need to consider a borrower’s income and outgoings. In addition, interest-only mortgages will only be offered to those with a firm repayment plan, rather than those relying on hopes that house prices will rise.
Therules will affect the nine million UK households that have a mortgage as well as many people in the rental sector who are already struggling to buy a home.
The FSA has cut the income limit of a high-net-worth mortgage customer from £1m to £300,000 and has recognised that borrowers in this bracket will be able to opt-out of receiving advice.
“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated. At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want,” added Wheatley.