The UK financial watchdog has announced that it is planning to introduce a system that will require all mortgage applicants to provide detailed proof of their income before any lending can be authorised.
The Financial Services Authority (FSA) is trying to prevent people from being able to borrow by just writing down how much they earn and not having to prove it as self-certified lending is accounting for nearly 45% of all mortgages in the UK.
The FSA believe this has caused problems due to people have overestimated how much they earn by not taking into account taxation and living expenses but it is not just mortgage applicants that are at fault, the FSA added:
“Lenders need to get back to the basics of responsible lending.”
The announcement comes after the FSA have compiled a report on the reasons behind repossession and other circumstance difficulties over the past five years. Lesley Titcomb of The FSA commented:
“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford it.”
But the announcement has been met with strong criticism as many people believe that the FSA cannot treat everyone under the same conditions, home-owners who may have had a mortgage for 30 years and never missed a payment will be under the same obligations as first time buyers . Other concerns are that of people with month – month or even week-week incomes who may not know what they will earn and prove it.
The FSA hopes to have the new legislation in place by early 2011 after feedback is received from mortgage lenders and other industry officials.