What New FCA Mortgage Lending Rules Mean for Consumers

Mortgage lending is on the rise again in the UK, but in a bid to put the brakes on banks – who got carried away before the financial crisis – the financial regulator has made a new set of rules for them.

Those rules, which will be imposed and enforced by the Financial Conduct Authority (FCA), should help limit high-risk mortgage lending that threatens the stability of the banking system, the health of the UK economy, and family finances.

"In the past too many people got a mortgage by simply telling their lender they would have no problem repaying their debt, and that was that," said Martin Wheatley, the FCA's chief executive.

"Getting a mortgage can be one of the biggest financial decisions people will ever make, so it needs careful consideration."

He added that the new rules "will hard-wire common sense into mortgage lending".

The guidelines, some of which already existed, come into force from 26 April, 2014. Here's what the FCA says they mean for you.

Proving your income and spending

Payslips, tax returns – whatever it is you'll need to provide historic proof of income before you'll get a mortgage.

Lenders will also need to know the details of your spending, such as household bills, council tax, living costs, existing debt repayments, and more.

Affordability

Lenders are now under more pressure than ever to check the affordability of mortgages for their customers.

Once they have looked at your income and spending patterns, they must assess your ability to repay the mortgage now and in future circumstances, such as if the Bank of England raises interest rates.

This means you have to tell them about any future events you are aware of that will change your income and spending, affecting your ability make repayments.

Advice

Those applying for mortgages will usually have an adviser with who they can discuss the various options and terms.

You can apply for a mortgage without speaking to an adviser (though you would need to know and understand all of the details). In this case, the lender must tell you about the legal protection you lose without seeking advice, such as the right to complain about the suitability of your mortgage.

If you do have an adviser, they must tell you how they are paid, what their fees are, and if there is a limit to the range of mortgage products they are able to recommend.