Home buyers in the UK are now facing much tougher checks under new rules by the Financial Services Authority (FSA) to prevent more risky lending.
Under the latest regulations, lenders are required to verify the income of every borrower through tougher affordability checks.
Borrowers are also not allowed to use interest-only mortgages as a cheaper alternative to repayment.
Lenders are required to “stress test” mortgages by means of predictions of future interest rate movements to ensure that borrowers can still afford repayments even if rates go up.
In addition, self-certification loans will be strictly banned under the measures.
Subject to a three-month consultation, the proposals follow a two-year study by the City watchdog.
“If lenders are to make their contribution to improving the supply of housing and to the wider agenda for economic growth, then they need a regulatory framework which also supports that objective,” said Paul Smee, Director General of The Council of Mortgage Lenders (CML).
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