Financial watchdog, the Financial Services Authority (FSA), has announced plans to encourage responsible lending, in a bid to prevent reckless borrowing.
Last October, the FSA proposed affordability tests for all mortgages to ensure that lenders get “back to the basics of responsible lending”.
It also wants mortgage customers to verify their income and this could see the end of self-certification loans – where no proof of income is required.
The watchdog said it wants to ensure that lenders only lent money to those who could afford it.
Lesley Titcomb of the FSA comments: “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 it.
“We need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers,” added Ms Titcomb.
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