The FSA says that at the core of the Mortgage Market Review (MMR) proposals are three principles of good mortgage underwriting:

* Mortgages and loans should only be advanced where there is a reasonable expectation that the customer can repay without relying on uncertain future house price rises. Lenders should assess affordability
* This affordability assessment should allow for the possibility that interest rates might rise in future: borrowers should not enter contracts which are only affordable on the assumption that low initial interest rates will last forever and
* Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on the assumption that house prices will rise.

The FSA believes it is important to have the rules well established long before any future upturns in the economy.