MORTGAGE lenders have largely welcomed a shake-up of the financial market aimed at preventing a return to irresponsible lending.

The Council of Mortgage Lenders (CML) and the Building Societies Association (BSA) said they supported the new measures announced yesterday by the Financial Services Authority (FSA).

In its Mortgage Market Review, the FSA said income will have to be verified in all applications – spelling the end of self-certification mortgages.

Interest-only mortgages will only be offered where there is a credible plan to repay the capital, preventing borrowers from relying on "uncertain" rising house prices. The CML said the new regulations would help customers to find suitable mortgages using sensible safeguards.

Paul Smee, director-general of CML, said: "Lending needs to be responsible and done in a way that protects consumers. Rules need to be practical and avoid unintended consequences.

"While there is much detail to be pored over, the FSA's new proposals seem to strike broadly the right balance. If lenders are to make their contribution to improving the supply of housing and to the wider agenda for economic growth, they need a regulatory framework which also supports that objective."

Paul Broadhead, BSA head of mortgage policy, added: "The new regulations appear to have struck a reasonable balance between allowing lenders flexibility when assessing affordability, while maintaining a sensible level of consumer protection.

"The transitional arrangements will help people who already have a self-certified mortgage – banned under the new proposals – re-mortgage to a more standard loan. Lenders will be able to take into account borrowers' repayment performance rather than a prescriptive set of income and affordability criteria."

The FSA report claimed that, while low interest rates have helped some borrowers, there are "real dangers" that problems are being stored away for the future.

The regulator warned that home owners may be at risk of failing to meet repayments once interest rates start to rise.