The FSA’s mortgage market review calls for affordability tests to be introduced on all mortgages with lenders required to verify borrowers’ incomes. Buy-to-let mortgages, which are currently regarded as business loans and therefore outside of the FSA’s remit, are also to be regulated.
The FSA said that the plans are ‘designed to tackle the problems identified while maintaining a vibrant and sustainable market’. However, the mortgage market is not vibrant by any standards and there is a danger that excessive regulation will further stifle it.
Thankfully, the proposals did not include caps on loan-to-value, loan to income or debt to income, as was previously mooted. But the FSA did not rule out such caps in future, if required.
The mortgage industry has until 30 January 2010 to respond to the proposals with feedback set to be published in March 2010. Implementation is likely to be phased in.