New FSA mortgage lending rules

New FSA mortgage rules are likely to be imposed in 2013 to stop a resurgence in risky mortgage lending. The regulator's revised proposals intend to bring in "common sense" standards to stop home buyers borrowing more than they can afford.

Lord Turner, chairman of the FSA, said: "While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return."

The regulator wants to stop any possibility of a return to the early years of the past decade, in which some lenders handed out mortgages with only cursory checks on borrowers' real ability to repay.

"The proposals will see prospective borrowers - whether they are first-time buyers, right-to-buy tenants or home movers - get the right information and advice, at the right time, and ensure mortgage lenders will be properly checking each applicant's realistic ability to repay their mortgage," the FSA said.

Although lenders will still have to check income details in each mortgage application, the FSA is no longer proposing that a borrower undergoes a detailed check of how they spend their money, but only be given a broad assessment of their "committed and essential household expenditure" instead.

Under the proposed new rules, interest-only mortgage deals can still be offered if there is a "credible" plan to repay the loan, which does not involve a borrower assuming he or she can eventually cash in on the rising value of their home.

Existing borrowers who already have a mortgage that might be forbidden under the new rules, such as an interest-only loan, a self-certified, or one with a very small deposit, will not be prevented from remortgaging. Lenders will be allowed to waive the affordability rules when entering a new mortgage contract - providing the borrower has a good repayment history.