City watchdog unveils plans for curbs on mortgages.

THE City watchdog has announced proposals to ban self-certification mortgages and impose affordability tests on all home loans.

Officials at the Financial Services Authority are also calling for a ban on mortgages containing "toxic combinations" which put borrowers at a higher risk, such as lending a high proportion of a property's value to people with impaired credit histories.

Other measures being proposed include bringing buy-to-let mortgages and all other lending secured on a home within the FSA's regulatory scope.

The FSA said the proposals, which were published in its mortgage market review discussion paper, reflected a shift to a more intrusive and interventionist style of regulation.

Under the moves being outlined, lenders would be ultimately responsible for assessing a consumer's ability to repay their loan, taking into account their monthly disposable income. Firms will also have to verify all borrowers' income, putting an end to both self-certification mortgages, which were aimed at self-employed people with irregular incomes, and fasttrack mortgages, under which people did not have to prove their income.

All mortgage advisers will also have to be personally accountable to the FSA under the proposed changes in the new regime.

The regulator said it would be publishing specific proposals toughening up the rules on the way firms handled customers who were in arrears in January.