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FSA considers taking control of mortgage products

The Financial Services Authority looks set to wade in on product regulation and may be considering setting maximum LTVs.

Appearing before the Treasury Select Committee last week Lord Turner, chairman of the FSA, indicated that the regulator is weighing up whether to regulate financial products as well as companies’ conduct and sales processes.

Lord Turner says: “There is a strong argument for the FSA getting more involved in product regulation than it has been in the past.

“The issue of whether maximum LTVs or loan-to-income should be regulated is on the table.”

He revealed that the regulator might even step in on mortgages of 85% LTV and 90% LTV.

The FSA will unveil its stance on product regulation by Q3 this year.

Lord Turner’s comments follow Prime Minister Gordon Brown’s recent article in The Observer in which he called on the FSA to control mortgages over 100% LTV.

MP Andy Love, who questioned Lord Turner, welcomes the idea.

He says: “It would be a revolution in thinking if the FSA was to go down the route of product regulation. In the present circumstances it would probably be an appropriate response.”

But the industry has warned that any proposals to curb LTVs and intervene in products must be carefully thought through.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, says: “This could be the beginning of more precise regulation of the mortgage industry.

“The fact is that many consumers need to borrow at 100% LTV and the government should be thinking about how these mortgages can be granted safely rather than banning them.”

Lord Turner has admitted there is a risk that product regulation may have unintended consequences – a fear first voiced by the Council of Mortgage Lenders.

The CML is worried that a ban on 100% LTV loans could push consumers towards other forms of borrowing.

A statement from the CML says: “There are side issues to consider, such as consumers topping up their borrowing with second mortgages or other unsecured loans on more expensive terms.”

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