Paul Broadhead, head of mortgage policy at the BSA urged the regulator to proceed with caution when implementing the proposals in its Mortgage Market Review (MMR) consultation paper.

He said that the FSA must ensure a greater balance between responsible lending and responsible borrowing, empowering borrowers to take ownership of their decisions.

“Well informed decisions are more likely to deliver consumer benefit. Placing all the responsibility and burden on lenders only weakens the position of consumers in the long term and should be avoided,” he said.

Broadhead added regulator’s proposals over affordability assessments and interest-only mortgages risked excluding credit-worthy borrowers from accessing mortgages.

He said: “There is a risk that the FSA’s proposals will prevent some credit-worthy customers getting a mortgage and create mortgage prisoners. To ensure borrowers are not adversely affected, it will be important that when the rules are implemented they provide clarity for lenders and are enforced consistently across the market.”

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Broadhead added that interest-only mortgages are not inherently bad or high-risk, but that borrowers must understand the importance of having a repayment plan in place: “The FSA needs to proceed with caution so as not to restrict the use of interest-only as a way of helping borrowers overcome repayment difficulties.”

In addition, Broadhead said the FSA must not rush into making decisions and implementing proposals: “We have seen several changes at a prudential and supervisory level, and the impact of these should be fully assessed before conduct of business rules are changed. This will enable the FSA to make targeted changes where consumer detriment persists.”