The Financial Services Authority (FSA) thinks so and wants to roll out new rules. A new era could be dawning for the UK's mortgage market, if the FSA has its way.
The regulator has published a discussion paper that outlines its plans for a much more hands-on style of regulation and far tougher mortgage rules. It wants to ban self-certified mortgages and impose far heavier credit checks on people applying for mortgages.
What has the FSA suggested?
The regulator has made a number of different proposals. It wants an end to self-cert mortgages, where the would-be borrower declares their income. It also wants to make lenders more responsible for their customers' ability to pay back borrowing, demanding greater affordability tests for mortgages.
Lenders would have to carefully examine applicants' spending habits, perhaps even check bank statements, to be confident that they have enough disposable income to repay the loan. It intends to prevent firms from profiting off struggling consumers by hitting them with arrears charges.
The FSA also wants to outlaw "toxic" borrowing, for example, lending high loan-to-value loans to borrowers without a steady income and with a problematic credit history.
Why has it made these proposals? The last 18 months have seen many people suffering "great financial distress", the FSA claimed.
Prior to the crunch, there was massive growth in the mortgage market, with many banks following high-risk lending strategies and relaxing their credit criteria.
Jon Pain, managing director of supervision at the regulator, explained:
"The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."
Will I be able to get a mortgage?
Once the new rules are brought in, some people will struggle to get a mortgage where previously they could have. There is some concern that the self-employed will struggle to gain mortgages without self-cert opportunities. However, the FSA insists that people who can afford mortgage repayments will still be able to borrow, they will just have to prove their earnings to lenders.
Hannah-Mercedes Skenfield, mortgage manager at moneysupermarket.com, said:
"The danger of self-cert mortgages has meant that often people were able to borrow money they had little chance of ever being able to pay back and lenders were too lax in checking the security of their income.
"It is therefore understandable that the FSA should look to safeguard this section of the market and put some responsibility on the banks' shoulders to check the security of their borrowers.
