The Financial Services Authority (FSA) has set out new regulations which it hopes will reform the UK mortgage market.

With recent research finding some lenders offering mortgages at over five times the income of the borrower, the new rules will help stop banks from giving out risky credit and causing another financial meltdown, the organisation said.

From now on, all borrowers will be required to take an “affordability test”, the aim of which is to determine whether borrowers have enough income to support the mortgage loan they are applying for.

“Self-cert” mortgages will be banned, as will 'toxic' loans, and mortgage lenders will no longer be able to profit from homeowners in arrears when the new regulations come in.

The FSA also intends to regulate buy to let mortgages.

Jon Pain, FSA managing director of supervision, said: "The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced ... will ensure that the mortgage market works better for consumers and that it is sustainable for firms."

A deadline for discussion on the proposed measures has been set for 30th January 2010 with a statement to follow in March.

The FSA says it intends to phase in implementation, with areas of “high detriment” such as arrears, taking priority.

Specific proposals on arrears handling will be published in January.

Furthermore, the regulator has not ruled out further intervention, such as caps on loan-to-income and loan-to-debt ratios, in future.