Lending rules to be tightened up

New rules to make sure that mortgages are only given to people who can afford the repayments are due to be announced by the banking regulator on Monday.

The Financial Services Authority will make banks liable for loans if they do not check customers can afford them.

It is expected to ban self-certified mortgages, in which customers do not have to prove their income.

City minister Lord Myners told the BBC that the measures were about "returning to responsible lending".

But he added that there would not be specific limits placed on the amount banks would be allowed to lend relative to their income or to the value of the property.

The mortgage market has self-corrected many of the past problems, but is still not functioning effectively Michael Coogan Director-general, Council of Mortgage Lenders Send us your comments

Instead, it is a "limit that says that the bank must ensure that it is in the interests of the borrower to take out the loan", Lord Myners added.

The change is part of a review of how lenders behave, which is expected to be published on Monday morning.

It is also likely to clamp-down on companies who push loans or credit cards on consumers without having been requested to do so.

'Protect homebuyers'

Prime Minister Gordon Brown said the "much tougher rules" would protect the public

"Never again should banks and credit card companies encourage you to borrow more than you can realistically afford to repay," he said in a webcast on the Downing Street website.

"I believe lenders should have to carry out proper checks on incomes before agreeing home loans.

"And to protect homebuyers further, we need much tougher rules to make sure that high loan-to-value or high loan-to-income mortgages are offered only when the lender has done rigorous checks to ensure people can keep up repayments."

'A bit late'

Mark Hoban, shadow financial secretary to the Treasury, said the prime minister should have acted much sooner to tackle problems of excessive lending.

"These problems have emerged on his watch and it's a bit late now to start clamping down," he said.

"What we need to do is make sure that the system of regulation we have in this country tackles these problems as they emerge in the future, rather than wait until we've seen the problems and have to clear up the mess."

Robert Sinclair, director of the Association of Mortgage Intermediaries, said regulation must "balance the need to protect consumers from unaffordable debt with their desire to buy a home of their own".

"We do not believe that the regulation of mortgage products will have the desired effect. In fact, it will restrict consumers unnecessarily," he said.

The Council of Mortgage Lenders warned against the introduction of too much new regulation at a time when it said many companies had already responded to changed market conditions.

Director-general Michael Coogan said: "The FSA faces a number of challenges and potential pitfalls in progressing its review too quickly.

"Perhaps the biggest of all is to resist external pressure to implement measures at a time when the mortgage market has self-corrected many of the past problems, but is still not functioning effectively."

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