A large number of loan and mortgage providers in the UK are still reeling from the effects of the credit crunch and are continuing to struggle with liquidity issues from a high level of arrears and defaults and the general lack of available money on the wholesale market.

Several experts suggest that these lenders, in many cases, have brought their problems on themselves due to a history of irresponsible lending over the past few years.

Vince Cable, shadow chancellor for the Liberal Democrats, has now called for those who provide any type of loan for an individual to act in a more responsible manner and for much more regulation within the loan industry. He said “If you borrow from a bank, there’s not a lot of regulatory consumer protection, there needs to be a more level playing field and lenders need to face stricter controls over their lending activity.”

Probably the best way of ensuring responsible lending is to use an affordability calculator for anyone applying for a loan or mortgage, which takes into account a persons regular expenditure as well as their monthly take home pay, rather than just credit scoring a customer and checking their income only.

An accurate affordability calculator will demonstrate that the borrower has the ability to meet the monthly repayments on their new loan or mortgage.

The Council of Mortgage Lenders have stated that many of their members already use such an affordability based system to assess a clients suitability for a mortgage loan and the British Bankers Association has also defended its members stating that most banks already have suitable procedures in place.

The Financial Services Authority (FSA) is currently in the process of carrying out a review into responsible lending and expects to publish its results in the near future, at which time we may well see additional regulation being introduced to ensure that all loan and mortgage providers conform to appropriate affordability rules.