'Liar' mortgage loans banned by FSA

Tough new mortgage rules will bar borrowers from taking out interest-only mortgages and loans that last longer than 25 years.

Under scrutiny: Many people will have to prove their income to be allowed a mortgage

City regulator, the Financial Services Authority, wants borrowers to prove they can afford to pay the capital and interest each month over a maximum of 25 years.

They also face tougher rules on proving how much they earn.

All borrowers will have to prove their income and take an affordability test.

In practice, this means having their debts and monthly expenditure deducted from their income.

This would then give a recommended monthly amount that a homeowner could afford to repay.

The self-employed or freelancers will have to stump up three years of accounts if they want to get a loan.

Those who can't will be asked to submit tax returns, bank statements or even evidence from HM Revenue & Customs to prove they can afford to borrow. And those with bad credit records will have restrictions placed on their borrowing.

This will cut the size of loan they can take out by 14% compared with a borrower without debts.

The reason for this is to give them spare cash in case they start struggling with repayments in the future.

Lesley Titcomb, FSA director, says: 'We expect consumers to be responsible, but the emphasis for checking income will be on the lender. When we have looked at data from people who were in arrears or repossessions, we could see there were issues with affordability.

'All we are asking is that people demonstrate that they can afford their borrowing.'