FSA takes over mortgage regulation

Changes surrounding the way mortgages are regulated came into force yesterday, as the City watchdog the Financial Services Authority (FSA) took over responsibility for the regulation of mortgage lending, administration, advice and the arranging of home loans.

The new rules will cover mortgages that are taken out after October 31, 2004, the date the industry has called M-day.

According to the FSA, the new regime means that customers will get clear information about mortgages and the services offered by mortgage brokers and lenders that will help them to make decisions more easily.

It will also mean firms will be held accountable and will be obliged to offer customers suitable products. Marketing material will have to be clear and must not be misleading, and lenders and brokers will have to consider the ability of a customer to afford a given mortgage.

Lifetime mortgages, used by older people to access equity built up in their homes, will also come under the FSA's regulation, and lenders and advisers will be obliged to make clear the risks involved with these sorts of products.

As of yesterday, all mortgages must be arranged with an FSA authorised mortgage broker or adviser, or direct with an FSA authorised lender.

The Council of Mortgage Lenders has urged borrowers to check that the intermediary they use when taking out a mortgage is authorised by the FSA. If the broker is not authorised, the lender will have to reject the application, forcing the borrower to start the process all over again, bringing about delays.

According to the FSA, the changes will also mean clearer information for consumers about mortgages thanks to new "keyfacts" documents which will help people to compare mortgages more easily, understand the nature and cost of services and contact the Financial Ombudsman with complaints.

John Tiner, chief executive at the FSA, said: "Under the new regime, consumers will continue to receive the benefits of the highly innovative UK mortgage marketplace."

He added: "Our focus now turns to the future supervision of the mortgage industry. An early priority for us will be to enforce the perimeter of the new regime and crack down on any firms that may consider continuing with unauthorised and illegal mortgage business."