The new measures are due to come into force in April 2014 as a result of a review by the FSA which aims to put “common-sense” at the heart of the market.
From today, the FSA also announced that lenders must not take advantage of a borrower who cannot get a mortgage elsewhere by treating them less favourably than other similar customers, for example by offering them a worse interest rate or terms.
The regulator said this would help protect people who were already stuck with their current lenders, as well as those who may become trapped when the new rules came in.
Around nine million UK households with a mortgage will be affected, as well as those in the rental sector struggling to get on the housing ladder.
Lending criteria to change
The FSA said its rules wouldn’t prevent lenders being able to offer low-deposit mortgages to first-time buyers, while no upper age limits will be imposed.
Martin Wheatley, managing director of the FSA said: “We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers.
“We want borrowers to feel confident that poor practices of the past, which led to hardship and anxiety, are not repeated.”
Rules will help ‘stamp out’ irresponsible lending
uSwitch personal finance expert Michael Ossei welcomes the Financial Services Authority’s initiative to stamp out irresponsible lending: “This move is not before time. For far too long consumers have been fobbed off with poor, if any, advice on how to manage their mortgage.
“Many have been encouraged to borrow more than they could possibly afford, as lenders have tried to boost their mortgage approval statistics.
“For most people, taking out a mortgage is the biggest financial responsibility of their lives – yet in many cases, checks on affordability have been far from thorough. Millions of homeowners have been left exposed and vulnerable to future defaults.
Better consumer advice needed
Ossei continues: “It’s time for lenders to help pick up the pieces. The tougher rules announced by the FSA today are a positive step towards this, reigning in irresponsible lending and improving the level of protection for borrowers.
“Consumers will now be offered a deeper level of advice on their mortgages and will have to work harder to show that they can really afford the loan. We hope that today’s move will force banks to stamp out their target-led culture and start putting the needs of the consumer first.”