All borrowers taking out a new mortgage will have to be proven to be able to afford it, under new proposals from the Financial Services Authority.

Under the new rules, each mortgage taken out would be carefully assessed to ensure the borrower can afford to repay it, to avoid a repeat of the maelstrom of missed payments and repossessions following the start of the housing crisis three years ago.

With these measures, the FSA hopes to avoid problems such as homeowners borrowing more than they can afford, before they develop or get out of control. Extra protection will also be provided for vulnerable customers who have an impaired credit history.

The FSA said that the proposed changes “aim to ensure all lenders get back to the basics of responsible lending” and make them “ultimately responsible for assessing a consumer’s ability to pay.”

To prevent borrowers falsifying their income in order to obtain a mortgage which they cannot afford, verification of every borrower’s income will be required; almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

The FSA formed these new plans based on research into the causes of arrears and repossessions during the last five years. It found that after mortgage payments and living costs were deducted, 46 per cent of households either had no money left or had a shortfall.

Commenting on the plans, Lesley Titcomb, FSA director responsible for the mortgage market, said: “There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.

“While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

© Fair Investment Company Ltd