The Financial Services Authority (FSA) is proposing to introduce new regulations in October 2009 that will, for the first time, restrict buy-to-let mortgages, blaming the global financial crisis on lax home-loan lending.

The FSA is planning to introduce measures which would impose a cap on the size of the mortgages, resulting in limits on the multiple of the buyers income or the proportion of the value of the property that could be borrowed. It does not want to see a return to loans which are either five times the buyer’s income or 125% of the properties value. The mortgage market review was started before the 2007 credit crunch that caused the collapse of several lenders, including Northern Rock, Bradford & Bingley and the Dumfermline Building Society. There will also be a crackdown on loans to sub-prime borrowers and mortgages given without clear proof of income.

The FSA is proposing this despite not originally having buy-to-let mortgages as part of its remit when mortgages came under its regulation in 2004, as they were deemed an investment and not owner-occupied homes. As the FSA can only currently propose new regulations the Government will have to agree with the change. The regulator also wants secondary loans secured against property to come under its remit. It argues that loans given in addition to conventional mortgages add to the borrowers overall debt and can circumvent rules on prudent lending.