New proposals to ensure people can afford mortgage debts

The Financial Services Authority (FSA) has outlined proposals to make sure borrowers can afford to repay their mortgage before taking the debt on.

The proposed changes aim to make sure all lenders `get back to the basics of responsible lending` and that any problems are stopped before they can develop or spiral out of control, leaving homeowners with a debt they can`t repay.

The proposals outlined by the FSA include:

• Checking a borrower`s income in every case to prevent over-inflation of income and to prevent mortgage fraud.
• Added protection for `vulnerable` customers with a poor credit history.
• Inclusion of affordability tests for all mortgages, and making sure lenders are ultimately responsible for assessing a borrower`s ability to repay the debt.

The proposals form part of a review by the FSA into the UK mortgage market and are based on findings from analysis of past lending decisions - looking at the causes of arrears and repossessions since 2005.

Here are some of the findings of the analysis:

• Almost 50% of all new mortgages taken out between 2007 and the first quarter of 2010 were provided without the borrower having to verify their income.
• Almost half (46%) of households had either no money left or a shortfall, after covering the cost of their living expenses and mortgage debt.