Mortgage report fears hit bank shares

The prospect of increased scrutiny of the mortgage market knocked bank shares yesterday amid fears that an imminent treasury consultation paper could lead to a crack-down on the way mortgages are sold.

However, industry sources believe the fears may be overstated at this stage and expect the consultation paper to contain little detail.

The government's apparent aim is to make it easier for consumers to compare market products, perhaps by creating a league table of lenders.

The treasury is expected to seek views on whether to regulate mortgage advice and sales products via the new financial services authority or remain with the voluntary code of mortgage lenders.

The paper is to be published days before an interim report from the controversial Cruickshank inquiry into competition in the banking sector.

The report by Don Cruickshank, the former telecoms regulator, was commissioned by chancellor Gordon Brown last November.

It is now expected to contain only an analysis of competition and its regulatory implications rather than a wider look at banks' relationships with small businesses and the way money is transmitted around the banking system.

That report is not now expected to be published until the autumn in order to give Mr Cruickshank and his team of economists more time to digest the data they have received from the banks.

The interim Cruickshank report this week is expected to lead to antagonism between the treasury and the FSA, which might be tasked with further responsibilities on competition in the sector.

Mortgages are also expected to be included in a department of trade and industry white paper on consumer affairs to be published on Thursday.