Tiner shoots at mortgage lenders

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The Independent Online

John Tiner, the chief executive of the Financial Services Authority, yesterday warned UK lenders to be more cautious before accepting mortgage applications, saying too many are relying on clients' income multiples rather than looking at actual affordability.

John Tiner, the chief executive of the Financial Services Authority, yesterday warned UK lenders to be more cautious before accepting mortgage applications, saying too many are relying on clients' income multiples rather than looking at actual affordability.

Speaking at the Building Societies Associations' annual conference in Manchester, Mr Tiner said ensuring that lenders' criteria was "responsible" would be a top priority once the mortgage industry comes within the FSA's remit from October.

He said: "For many years there has been a tendency to think in terms of income multiples as an expedient short-cut to assessing affordability, and that brokers particularly welcome the near certainty that income multiple criteria give when dealing with prospective borrowers.

"But gross income on its own is a very poor guide to affordability, whether or not that income has been verified with an employer or an accountant."

Mr Tiner said lenders should instead look primarily at income after tax, household expenses, other loan payments and any other regular outgoings. Furthermore, he said, lenders needed to look at affordability after the initial mortgage rate has increased. And for interest-only borrowers, he said lenders should consider their ability to repay the capital amount.

He added that while the FSA decided recently not to tighten rules for self-certification mortgages, there was still "no room for complacency".

As competition has intensified in the mortgage industry in recent years, Mr Tiner said he was concerned that lenders had been taking on much greater risk without fully assessing the consequences.

"It is far from clear to us that all societies operating in the commercial, buy-to-let, equity release, sub-prime and self-certified markets have properly assessed the additional risks that inevitably go with the higher margins available," he said.

Consumer groups echoed Mr Tiner's concerns about rising consumer debt. The National Consumer Council said that yesterday's rate rise would be "the writing on the wall for the UK's biggest ever credit binge".

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