Government regulates mortgage industry

The government today tightened regulation of the mortgage
industry by bringing the sector under the purview of the
financial services authority.

Melanie Johnson, economic secretary to the treasury, announced
that the FSA would regulate mortgage advertising and require lenders to
disclose all the main features of loans clearly and openly, including the "small print". The
FSA will now begin preparations to bring these changes into
effect next year.

The decision follows widespread complaints about the industry on
subjects ranging from misselling of endowment mortgages to
costly tie-ins of insurance products to home loans. Under the
plans outlined today, the government will also set benchmark
standards for variable and fixed rate or capped home loans which
will come into force with almost immediate effect. These
standards will be voluntary and not all mortgages will, or
necessarily should, meet them.

The standards will tell borrowers what they can expect of the
products to enable them to make more informed mortgage choices.
Ms Johnson said: "Our promise to homebuyers is this: 'You will
know how much you have to pay every month. You will know up
front what you will pay to move your mortgage and you will know
how much it will cost to get out of your mortgage early'."

Until now, the mortgage industry had governed itself using a
system of voluntary codes. Consumers have criticised the
mortgage industry's charges and practices in recent years and
the FSA, the financial sector's main regulator, is expected to
control these areas more tightly.

Mortgage bank stocks have underperformed the wider market
significantly in the last year amid fears that the regulators
and new competitors could further squeeze profits in a sector
already pressured by falling margins.

The government started to look at the ?500bn mortgage industry
last summer as part of its campaign against "rip-off Britain".
It examined
whether home buyers faced punitive lock-in terms, hidden charges
and compulsory insurance when taking out mortgages.

The council of mortgage lenders, which operates the current
voluntary code for the industry, favours putting the FSA in
charge of regulation. The bigger players are apparently happy to
see statutory regulation, but small independent operators are
likely to find compliance expensive.

Useful links
Financial services authority
Council of mortgage lenders
The treasury