Applicants for a home loan may have to divulge how much they drink and even any trips to the theatre under proposals to improve the regulation of the mortgage market.

The Financial Services Authority (FSA), the City watchdog, has called for stricter “affordability” criteria to be applied by banks and building societies, with borrowers subjected to rigorous questioning about their spending habits.

The discussion paper released yesterday, which heralded a more “intrusive and interventionist” style of regulation, aims to prevent a return to the type of irresponsible lending by banks and building societies that was prevalent before the credit crunch bit in 2007.

The FSA said that lenders, rather than borrowers or mortgage brokers, should be ultimately responsible for ensuring that a customer could afford to take out a loan. However, it also called for a ban on loans to borrowers posing “toxic combinations” of risks.

Experts have warned that the proposals could herald a return to the Seventies, when lenders interviewed every applicant and carried out long-winded checks on every borrower.

Robert Sinclair, director of the Association of Mortgage Intermediaries, a trade body representing brokers, said: “We are concerned with proposals to introduce stringent criteria for lending that may significantly increase the cost of borrowing for ordinary, responsible consumers.”

The FSA also confirmed in its mortgage market review that it wants to ban self-certification mortgages, as revealed in The Times last week. These have been dubbed “liars’ loans” because borrowers do not have to prove income.

These infamous deals were designed for the minority of self employed borrowers, but represented 45 per cent of all mortgages approved in 2007 as lenders “fast-tracked” applications from average borrowers. In future, all lenders must check the income of borrowers, the FSA has argued. The watchdog fell short of suggesting a ban on other riskier loans, including higher loan-to-value deals such as the Together loan from Northern Rock, which enabled first-time buyers to borrow 125 per cent of a property’s value. It also rejected a cap on higher loan-to-income multiples, another proposal floated recently.

David Hollingworth, of London & Country Mortgages, a broker, said: “Imposing caps could have been seen as bad news for the first-time buyer market.”

The FSA proposals have been put out for discussion until January and it will publish a feedback statement in March, after which proposals could be phased in.

However, it said that a ban on certain charges levied against borrowers in arrears and those facing repossession could be introduced more swiftly.

Tighter affordability checks are currently the norm in the mortgage market as lenders struggle to secure funding for new deals. It means that a missed mobile phone payment or frequent applications for credit cards can lead to a borrowers being rejected.

However, lenders warned that the proposals risked shifting too much responsibility away from consumers.

The Council of Mortgage Lenders, a trade body, said that it was “important that the principle of consumer responsibility is not lost in such a regulatory environment, as it is a basic tenet upon which transactions of all kinds between firms and consumers rely”.

Jon Pain, managing director of supervision for the FSA, said: “The reforms will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”

Case study: 'It's wasting valuable resources'

Mandie Martin, 25 is a would-be first-time buyer who under the FSA’s proposed rules could have her mortgage application rejected because of her spending habits and one outstanding loan. The administrator for a radio company, who lives with her parents in Manchester, admits to spending on socialising with friends, often eating out. She also has a small outstanding loan that she used to pay for a holiday — after the proposed clampdown on credit records, this could damage her chances of getting a mortgage.

She says: “I feel that this is unfair, especially as it is already so difficult for first-time buyers like me to get on the property ladder. People my age in similar predicaments are already sacrificing to find the money for large deposits and the necessary fees that accompany a mortgage deposit. I am also dubious as to how they are likely to gauge this. Surely no one is about to admit that they spend £200 a week on socialising when they know that it is going to be a determining factor in their application process?

“If they are literally going to analyse people’s bank statements then I would suggest that rather than nit-picking and wasting valuable resources, they should put their heads together and come up with a realistic plan to get the current generation on the property ladder.”

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• London Villages

• Specials

• First-time buyer

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers