Mortgage market inquiry

The government yesterday launched an inquiry into whether homebuyers are being ripped off by mortgage providers in order to establish if the market, worth £90bn a year, needs formal regulation.

Among the results of the three-month consultation is the likelihood of a minimum charges, access and terms (Cat) standard for mortgages with pledges about linkage to official interest rates and the establishment of league tables allowing consumers to compare products.

The paper, coming only days before the interim Cruickshank report on competition in the banking sector, is a response to concerns that the two-year old voluntary regulation under the Council of Mortgage Lenders' code is failing to protect homebuyers.

The code is regarded as relatively easy to sidestep and lenders can choose not to offer the highest levels of advice as set out by the code.

In the consultation paper, the treasury highlighted three areas of "worrying" treatment of mortgage customers - mortgage lock-ins, failure to pass on official interest rate cuts and "bundled" selling of insurance with mortgages.

Patricia Hewitt, economic secretary to the treasury, said she wanted views on whether the voluntary code was effective, and gaining the confidence of mortgage-holders.

Many industry experts now believe it is inevitable mortgages will be brought under the remit of the financial services authority, although the treasury insisted the publication of the consultation document was a sign that no decision had been taken.

The paper, which did not contain any specific policy proposals, said that because of the size of the mortgage market there would be "powerful" case for regulating the advice and marketing of mortgages if evidence was uncovered of serious harm to borrowers.

"We do not know enough about whether people are getting a good deal or a bad deal out of the mortgage market. We are conducting a wide-ranging review to get a better picture of what is going on and of borrowers' concerns," Ms Hewitt said.

The move towards statutory regulation was given crucial backing by Halifax, the country's biggest mortgage lender. "Statutory regulation will underpin the importance that most home owners rightly attach to getting a mortgage and will bring real benefits to the consumer," said James Crosby, chief executive of the Halifax.

The Consumer Association said the publication of the consultation paper was acknowledgement from the government that a problem existed. "The government must now act, rein in and regulate this industry to ensure that consumers get a fair deal."