Borrowers face tougher scrutiny

Borrowers face a mortgage affordability test from lenders amid plans by the Financial Services Authority (FSA) to step up the regulation of home loans.
Self-certification mortgages will be banned under the proposals with lenders required to verify borrowers' incomes.
FSA chief executive Hector Sants said that some people who were able to get home loans in the boom would no longer be able to under the proposed rules.
The industry will have until 30 January 2010 to comment on the plans.
The FSA, in its mortgage market review, has outlined a series of proposals for increasing regulation in the mortgage market.
All borrowers will have to show they have sufficient spare income to finance the repayment of their new home loans.
However, the FSA drew back from any ban on 100% mortgages, or any limit on loan-to-value levels. There was also no ban on loans over a certain multiple of borrowers' incomes.
However, it did not rule out such caps in the future, if the initial proposals failed to have a "sufficient effect".
The plans, which the FSA described as more "intrusive and interventionist", include:
• Making lenders ultimately responsible for assessing consumers' ability to pay by studying borrowers' monthly disposable income
• Banning the sale of "toxic combination" loans, such as a high loan-to-value loan for somebody with a poor credit history
• Stopping charges for borrowers who have got behind on payments, but are keeping to an arrangement to repay these arrears
• Extending policing of the industry by the FSA to all mortgage advisers and arrangers.
"We need a new approach to regulation," Mr Sants told the BBC.
He said that the irresponsibility of the past that put firms and consumers at risk should not be repeated.
"In the past, the prevailing regulatory philosophy was definitely based on the notion that banks would behave properly and not put themselves at risk and not put consumers at risk," he said.
"I think we just have to recognise that both firms and indeed consumers just don't always make the best decisions. They don't always act in their their best interest or indeed in the best collective interest of society. So we need a new approach to regulation."