New lending proposals prompt trade body's mortgage warning

The Council of Mortgage Lenders said the rules being proposed by the Financial Services Authority failed to take into account the changes that had already taken place in the mortgage market since the credit crunch struck.

The group said research carried out on its behalf had found there was a "high risk" that if the new rules were introduced, banks and building societies would further tighten their lending criteria, intensifying the current mortgage shortage and creating "significant financial exclusion" among "perfectly credit worthy borrowers".

In its response to the FSA's consultation on the issue, the CML warned that the City watchdog had also failed to take into account the impact that separate regulations on the level of capital lenders must hold would have on the mortgage market.

As a result of these rules, the group said it was unlikely that there would be any "swift return" to a market in which firms had excess capital to lend, which was seen in the run up to the credit crunch in 2007.

It has previously called for the introduction of the new rules to be deferred, to reflect the fact that the risks they seek to address are not a feature of the current market.

The FSA wants to introduce tough affordability and income verification checks, including getting lenders to assess whether borrowers would still be able to afford their mortgage if rates rise.

The CML has previously warned that around 45 per cent of people taking out a mortgage this year would have been hit by the FSA's new rules if they were already in force. It pointed out that the FSA's proposed rules failed to address the problem of where people would live if they could not become homeowners.