The financial regulator unveils new rules for banks on approving mortgages to make sure customers are not able to borrow more than they can afford.

The Financial Services Authority (FSA) today (19 Dec 2011) announced plans to prevent a return of the risky mortgage lending seen in boom times, by ensuring that common sense standards continue to apply in future.

The Mortgage Market Review aims to prevent a recurrence of the irresponsible lending which resulted in some borrowers taking on mortgages which only seemed affordable on the assumption that house prices would always rise. Many of those borrowers ended up struggling to repay their mortgage and in danger of losing their home.

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.

In light of the subprime mortgage crisis which has had such a profound impact on the world’s financial markets it is clear to see from the FSA’s plans that a review of the mortgage application process is required and well overdue.

My own perspective is that the FSA’s plans infer that the current processes employed are not up to the standards they should be. This positive move shows that the FSA are committed to greater mortgage regulation, including income checks and affordability tests, and a review and overhaul of the processes which govern them.