Speaking at the annual conference of the Council of Mortgages Lenders, FSA chairman Sir Howard Davies says loans are now being made at higher multiples than at the height of the last housing boom in 1989.
This boom was followed by a slump that left many buyers with negative equity.
Fearing the same could happen again, Davies wants lenders to take more account of potential affordability problems for borrowers.
He is very concerned that the continuing rise in loans using high income multiples now stands at about three times for single people or two and half times for joint borrowers.
Davies says “The proportion of loans in this category has increased sharply and now represents as much as a third of new lending in recent quarters.”
He believes given the level of house prices it is important for lenders to consider whether borrowers can afford to service and repay their loans.
He also claims borrowers need to be more clear sighted about their ability to meet home loan requirements.