In its business plan for 2011/12 published today, the regulator admitted its early proposals to have a fixed 25 year term for assessing affordability wouldn’t have worked ‘given the range of personal circumstances.’

However, the regulator said the affordability assessment must be central to any application for both interest-only and repayment loans.

The FSA is set to publish a full cost benefit analysis of its proposed mortgage rule changes in the summer, with the final package of rules expected in early 2012.

Hector Sants, FSA chief executive, said: “The 2011/12 business year for the FSA will be a difficult one. We have to ensure that we are operating effectively as a supervisor as well as taking forward the key policy initiatives.”

The regulator said policy continues to evolve on the UK, EU and global fronts alongside its restructure into the Prudential Regulation Authority (PRA) with the existing FSA legal entity becoming the Financial Conduct Authority (FCA) at the end of 2012 or early 2013.

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“We will be seeking to deliver this agenda with a capped headcount,” it said.

The regulator’s annual funding requirement will rise 10.1% in gross terms in 2011/12 to £500.5m, up from £454.7m in 2010/11.

Larger firms will largely bear the increase, said the FSA, which added enforcement fines would be returned to the industry, discounting fees 2% in 2011/12.

The FSA said it will continue with its consumer protection strategy, in the investment market through the RDR and mortgage market through the MMR, both of which aim to anticipate consumer detriment and stop it before it occurs.

The main RDR changes on adviser remuneration commission structure and training and qualifications should be introduced from 1 January 2013.

The Business Plan is now available on the FSA website