Mortgage lenders bow to statutory policing by FSA

Statutory regulation of mortgages seemed inevitable last night after the home loans industry's main trade body finally bowed to pressure and accepted lenders should be policed by the Financial Services Authority.

The Council of Mortgage Lenders admitted defeat over the voluntary code of practice covering the sector and conceded that the best way of improving public confidence was for home loans to be made subject to independent statutory regulation. That would subject them to the same level of scrutiny as investments and personal pensions.

The announcement was welcomed by the National Consumer Council which said formal regulation "would seem a fait accompli now".

The CML's change of stance follows a welter of negative publicity during recent months, with lenders accused of penalising their customers in a range of ways, from not passing on interest rate cuts to locking people into uncompetitive deals with punitive early redemption penalties.

It also came on the day Gordon Brown, the chancellor, announced that banks would have to publish league tables showing all their charges for financial services.

The treasury is consulting on whether the FSA should police mortgages and a decision is due by the end of the year. It is expected shortly to announce proposals on voluntary "model mortgages" whereby to obtain approval, lenders would have to spell out all the costs of a loan, including fees and charges.

The CML, whose 118 members account for 98% of the home loans market, said the government should simplify the current "confusing patchwork" of mortgage regulation into a single, simple framework overseen by the FSA.

At the moment, mortgage lending is regulated by a voluntary code of conduct policed by the industry itself. The code was introduced for lenders in 1997 and extended to mortgage brokers last year.

Earlier this month, a survey carried out by local trading standards officers found that more than a third of mortgage brokers gave people poor advice and information, and nearly three-quarters failed to inform them of their rights.

•Fears of a repeat of the boom-and-bust cycle of the late 80s have been exacerbated by new figures showing the number of estate agents reporting rising house prices is at its highest for 11 years.

Prices are expected to continue upward despite the Bank of England base rate rise, the Royal Institution of Chartered Surveyors said yesterday.

Nearly three-quarters of estate agents surveyed reported property values going up in their area - six times higher than a year ago. But a spokesman said only four regions - London, the south-east, East Anglia and the south-west - could be described as having boom conditions, according to its criteria.