New proposals for mortgage regulation were published by the Financial Services Authority (FSA) today, which were seen as a sensible compromise by many lenders and financial experts.

The FSA proposals, which are scheduled to come into force in 2013, are intended to rein in the “riskier” lending of the boom years before the credit crunch. However, the FSA has also taken into account concerns that reforms may go too far and freeze many potential home-owners out of the mortgage market altogether.

There will be a complete ban on so-called “self-certified” mortgages, which led many borrowers to take out mortgages beyond their means. However, existing mortgage-holders will not be subject to quite so onerous a set of conditions and first-time buyers, plus those on lower incomes, will also receive a greater degree of flexibility.

Previously, the FSA was considering a blanket ban on interest-only mortgages, but today it announced that these will only be more strongly regulated.
FSA chairman Lord Turner said: “While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return.”

Lenders are being directed to more properly and rigorously assess the ability of mortgage applicants to repay a loan, with the FSA explaining that “the proposals will see prospective borrowers – whether they are first-time buyers, right-to-buy tenants or home movers – get the right information and advice, at the right time, and ensure mortgage lenders will be properly checking each applicant’s realistic ability to repay their mortgage.”

Council of Mortgage Lenders (CML) director general Paul Smee welcomed the proposals, calling them “workable and appropriate,” and observing that they “seem to strike broadly the right balance.”

The plans will now be subject to a further round of consultation before being implemented.

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