First-time buyers may lose out after mortgage reforms

New FSA proposals to make it more difficult to obtain loans

The Financial Services Authority has set out new regulations which it hopes will shake up the mortgage industry and prevent any further financial meltdowns from happening.

The City watchdog hopes that the new rules will curb the reckless and high-risk lending which was at the root of the credit crunch.

One of the key proposals will require mortgage applications to include "affordability tests" which lenders will scrutinise and decide if the prospective borrower has enough disposable income to support their loan.

Self-certified mortgages which do not require the borrower to prove their income will be banned, as will so called "toxic" loans.

The FSA also plans to regulate buy-to-let mortgages.

Jon Pain, FSA managing director of supervision, said: "The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced ... will ensure that the mortgage market works better for consumers and that it is sustainable for firms."

However, the proposals have been met with a mixed-reaction from the financial world.

Experts have warned that the measures may do more harm than good to the mortgage market. First-time buyers, they say, will find it even more difficult to get on the property ladder and this will be detrimental to the market as a whole. While those who are self-employed and contract workers will suffer as a result of the banning of the "self-cert" applications that they relied on to get a mortgage.

Implementation of the measures will be spread out over a period of time, with priority on those areas which present the most risk to consumers, such as arrears. The paper is out for discussion until 30 January 2010, while the FSA seeks feedback from the mortgage industry and consumer groups.

Claims Financial