John Stillwell
Tough new mortgage proposals from the financial regulator could see many would-be homeowners struggle to get a loan.
The Financial Services Authority (FSA) has suggested a ban on self-certified mortgages and far stricter affordability checks that could even require banks to investigate applicants' spending habits before they lend.
The regulator made the suggestions in a bid to shore up the mortgage market and ensure that, quite simply, banks only lend to people who can afford to pay the money back.
"The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms," explained Jon Pain, managing director of supervision at the FSA.
If implemented, the rules would prevent firms from profiting off struggling consumers by hitting them with arrears charges and also outlaw what is known as "toxic" borrowing - offering high loan-to-value deals to borrowers without a steady income and with a problematic credit history.
The new rules have understandably raised concerns that even viable borrowers could be rejected for a mortgage.
Will I be able to get a mortgage?
Without doubt, some people will struggle to get a mortgage where previously they could have if the new rules are brought in.
There is some concern that the self-employed in particular will struggle to gain mortgages without self-cert opportunities.
However, the FSA has insisted that people who can afford mortgage repayments will still be able to borrow - they will just have to prove their earnings to lenders.
Hannah-Mercedes Skenfield, mortgage manager at moneysupermarket.com, said: "The danger of self-cert mortgages has meant that often people were able to borrow money they had little chance of ever being able to pay back and lenders were too lax in checking the security of their income.
"It is therefore understandable that the FSA should look to safeguard this section of the market and put some responsibility on the banks' shoulders to check the security of their borrowers.
"However, in practice the verification of income could be a tricky process with future income levels often hard to predict. Self-employed people looking for a mortgage will have to make sure they have clear documentation to prove their income levels."
People on lower incomes will also find it harder to access the kind of mortgage products they could before and face much sterner scrutiny of their personal finances before a mortgage is agreed.
If you have a poor credit rating, this could well affect your ability to gain a mortgage. Read our article 'How to improve your credit score' for more information.
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Could the FSA have gone further?
The FSA had considered bringing in even tougher regulations and warned that, if the measures outlined today do not curb irresponsible lending, this could still happen.
Such last-resort measures could include placing caps on loan-to-value, loan-to-income or debt-to-income.
When will the rule change happen?
The FSA is currently consulting on the proposed changes and will publish feedback in March, before gradually phasing in the changes.
It said that some rules would be rapidly rolled out because of their importance, such as the rules on arrears.
Does everyone agree?
The Council of Mortgage Lenders said it welcomes the discussion paper but accused the FSA of suggesting it needs to "protect consumers from themselves".
No one should lose sight of the principle of consumer responsibility, a spokesperson urged.
Meanwhile, the Building Societies Association insisted that an outright ban on self-cert mortgages is "inappropriate" because they are suitable for a minority of people.
