LONDON (Reuters) - Most Britons seeking a home loan after next year will be required to get professional advice to establish whether they can afford the repayments, the Financial Services Authority said on Thursday.
Only people who earn 300,000 pounds a year, have assets worth three million pounds or only want minor changes to an existing loan will be exempt from a consultation.
The aim of the new rules which come into force on 26 April 2014 is to test affordability and end so-called "liar loans" where the borrower has not been required to give proof of income.
The changes seek to end Britain's history of housing booms and busts due to the country's love affair with home ownership, creating rollercoaster rides for the economy.
The home loans market has already cooled sharply compared with the run up to the 2007-09 financial crisis as lenders are far stricter, forcing borrowers to stump up much bigger deposits while turning down others.
"We recognise that many lenders are now using a far more sensible set of lending criteria than before, but it is important that these common sense principles are hard-wired into the system to protect borrowers," FSA managing director Martin Wheatley said in a statement.
"At the heart of the new measures is an affordability test to check borrowers can meet the repayments of the mortgage they want."
Interest-only mortgages can be offered to anybody who shows they have a credible repayment strategy, the FSA said. There are no fixed caps on how much a bank can lend to a first time buyer, or limits on lending to older people.
Wheatley said one rule will be introduced immediately to deal with so-called "mortgage prisoners", who find it difficult to remortgage because the value of their home has fallen.
The FSA estimates that 55 percent of former first-time buyers who obtained a loan in 2005-11 could be "prisoners".
Over a fifth of former first-time buyers could also be in negative equity, meaning the value of their home is less than their outstanding loan.
Lenders would be allowed to make exceptions to the responsible lending rules for such customers seeking to remortgage, providing there is no increase in the outstanding sum to be repaid.
(Editing by Greg Mahlich)