Lenders will have to carry out rigorous checks on homebuyers’ monthly spending habits before issuing new mortgages, under new rules announced today by the UK’s financial regulator to clamp down on reckless lending.

Homebuyers will need to prove their ability to repay the loans, by providing details of their income, outgoings and any existing loans.

The Financial Services Authority (FSA) is also expected to ban self-regulation mortgages, where borrowers do not have to prove their income.

However, the FSA has stopped short of imposing caps on loan-to-value or loan-to-income mortgages, and a ban on 100% mortgages, deciding instead to crack down on risky lending.

Jon Pain, the FSA’s managing director of supervision, said: “The FSA needs to ensure that firms only lend to people who can pay the money back.”

At the weekend, Gordon Brown said the new measures were necessary to put an end to “reckless” lending.

“I’m determined to end the reckless banking practices that have left so many of you worried about your household budgets,” the prime minister said in his latest webcast.

“So to give you a better deal we are taking extensive action to reform the whole culture of the financial sector and to protect and empower you, the consumer. I believe lenders should have to carry out proper checks on incomes before agreeing home loans.

“And to protect homebuyers further, we need much tougher rules to make sure that high loan-to-value or high loan-to-income mortgages are offered only when the lender has done rigorous checks to ensure people can keep up repayments.”

Lord Turner, the FSA chairman, said that the rapid expansion of the mortgage market and the easy availability of high-risk mortgages contributed significantly to the current financial crisis.

This entry was posted on Monday, October 19th, 2009 at 8:25 am and is filed under Housing Market, Loans, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.