It should be acknowledged that the UK mortgage industry has "failed a significant minority," FSA director general of supervision Jon Pain has said.
Addressing the mortgage industry at the Council of Mortgage Lenders' Annual Conference last week, Mr Pain said that while the mortgage market worked well for many people, it needs stricter supervision and tighter regulations so that it works for all borrowers.
"Therefore, the priority must be to move towards a market that is flexible, sustainable for all and works for consumers," he said, referring to new proposals recently laid out by the FSA. Mr Pain said that the proposed changes illustrate the FSA's "bolder approach to regulation, the importance of intensive supervision focused on outcomes, and its commitment to restore confidence in financial markets, to protect consumers and reduce financial crime."
The new proposals include doing away with self-certification mortgages – a strong contributor to homeowners falling into arrears once the credit crisis struck; lenders will have to carry out stricter affordability tests to ensure that potential borrowers can afford to repay the mortgage.
Before the credit crisis, it was common practice for self-cert mortgage customers to attain a home loan with little proof of income or evidence that they could afford to take on the debt.
In response to some criticism from members of the mortgage industry aimed at the new proposals, Mr Pain said: "It is not the FSA's intention to penalise ‘non-banks' or to stifle competition but it is looking to curb the particularly high-risk lending strategies that led to significantly higher mortgage arrears levels."
Furthermore, the FSA will be consulting in the New Year on tightening its conduct of business rules on arrears handling, he added.
In conclusion, Mr Pain elaborated: "Just as a house requires solid foundations to be long lasting, mortgages need to be based on a proper assessment of affordability if we are to have a sustainable market. Everyone who takes out a mortgage should be able to repay it – they should have some evidence that they can repay it and lenders should take note of that evidence.
"We want lenders to get back to the basics of responsible lending and we will continue to push the industry where we find firms are not treating their customers fairly."
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