The FSA has proposed changes to ensure all mortgages are carefully assessed to make sure borrowers can afford them.

The move aims to ensure all lenders get back to the basics of responsible lending and that problems are prevented before they can develop or get out of control.

Some of the key proposals include imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay and requiring verification of borrowers’ income in every case to prevent over inflation of income and to prevent mortgage fraud. It also wants extra protection for vulnerable customers with a credit-impaired history.

The new proposals, published in the consultation paper, form part of a major review by the FSA into the UK mortgage market and are based on detailed analysis of past lending decisions, looking at the causes of arrears and repossessions since 2005.

The FSA found that 46% of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income. Almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

The share of interest-only mortgages has been increasing. At the peak of the market, over 30% of all mortgages were interest-only, while many consumers with no repayment vehicle count on future house price rises or uncertain life events to repay their mortgage and some have no plan at all.

Lesley Titcomb, FSA director responsible for the mortgage market, said: “There is a clear link between financial overstretch and mortgage arrears and repossessions