UK regulator outlines plans to ban ‘liar loans’

LONDON: The UK's financial regulator plans to force mortgage lenders to check the income of all borrowers, scrapping so-called "liar loans" blamed for helping to fuel bad debt problems at the heart of the credit crunch.

In a long-awaited review of the UK mortgage market published on Oct 19, the Financial Services Regulator said it would impose affordability tests for all mortgages, but stopped short of imposing ratio limits that could have effectively banned loans for 100% or more of property prices.

The review, which reflects a more intrusive style from the FSA, criticised for failing to prevent last year's financial crisis, also banned products with "toxic combinations" of characteristics and arrears charges when a borrower is already repaying.

It called for the FSA's scope to cover buy-to-let -- or landlord mortgages -- and all lending secured on a home.

"The FSA needs to ensure that firms only lend to people who can afford to pay the money back," Jon Pain, managing director of supervision for the regulator, said. "The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."

The FSA's discussion paper will be open for consultation until the end of January, with the next statement, on industry feedback, to be published in March. -- Reuters
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