Half of mortgages provided without affordability test

The Finncial Services Authority has outlined proposals to ensure all borrowers are carefully assessed to make sure they can afford to take out a mortgage.

The proposed changes aim to ensure all lenders get back to the basics of responsible lending and that problems are prevented before they spiral.

Key proposals include imposing affordability tests and making lenders responsible for assessing a borrower’s ability to pay, and requiring verification of income in every case.

The proposals follow findings that almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

Lesley Titcomb, FSA director responsible for the mortgage market, 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.”

The FSA is actively seeking views from consumer groups and the industry, and invites responses by November 16.

Meanwhile, speaking yesterday, FSA chairman Lord Turner said there needs to be a fundamental debate in this country about how much easy credit should be available in the mortgage market.