Mortgage lenders will be forced to verify would-be borrowers' incomes and check there is a credible repayment plan in place if they apply for an interest-only mortgage under rules the City regulator says will "hard-wire common sense into the mortgage market".
From April 2014, anyone applying for a new home loan will be expected to prove how much they earn rather than the lender simply asking them to state their salary. At the same time, lenders will be expected to be able to demonstrate that a borrower can afford mortgage repayments after paying tax and their regular household bills, and will only be able to grant interest-only loans if a borrower has a clear repayment plan in place.
The rules, outlined by the Financial Services Authority (FSA) following a three-year review of the mortgage market, are designed to stop borrowers taking on loans they cannot afford.
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