The Financial Services Consumer Panel is calling on the FSA to delay the mortgage market review affordability rules until the sector has recovered.
Under the affordability proposals, lenders would be required to obtain detailed information about every borrower’s income and expenditure to assess if a mortgage is affordable.
All mortgages would have to be assessed on a capital and repayment basis, including interest-only mortgages, and on a maximum term of 25 years and lenders would also have to ensure interest-only borrowers have a repayment vehicle in place.
The FSA says it does not expect to publish its final rules before 2012.
The panel’s six-point plan for “a sustainable and healthy mortgage market”, published last week, says it is possible lenders will reject borrowers based on what they anticipate to be in the final MMR rules.
The FSCP report says: “There is a danger that lenders will reject mortgages which they view as not complying with the MMR and so further restrict consumers’ options during a period of general lending restraint.
“To avert this danger, implementation of new affordability rules should be delayed until the housing market has demonstrably recovered.”
London & Country head of communications David Hollingworth says: “We do not want to tighten lending up to the point where we constrain the mortgage market’s recovery.”