H.M. TREASURY

REGULATION OF MORTGAGE LENDING

Measures announced by the Treasury for the statutory regulation of mortgage lending by the Financial Services Authority (FSA) will give borrowers better information about mortgages. These should mean an end to :

€ loans that cannot be compared easily

€ loans too expensive to escape

€ misleading interest rate offers

€ hidden charges

€ hard selling of endowment mortgages

€ expensive tied insurance.

A consultation exercise was held by the Treasury during 1999, following recommendations by the Joint Committee on the Financial Services and Markets Bill and the House of Commons Treasury Select Committee that it should examine the case for regulating mortgage business. The open public debate was launched by the consultation document "Regulation of Mortgages: a discussion document by HM Treasury" published in July 1999 (HM Treasury press release 122/99).

The consultation involved financial services industry and consumer representative bodies as well as the FSA and individual mortgage providers, borrowers and members of the public. A summary of concerns expressed is attached. The consultation showed that prospective borrowers' main need is for better information about the loans available.

The Government will introduce a statutory instrument under the Financial Services and Markets Bill to implement reserve powers provided by the Bill to give the FSA statutory responsibility for regulating most residential mortgages.

All mortgage lenders will have to be authorised by the FSA, with specific permission to lend on mortgage. Mortgage brokers will not need to be authorised unless they also carry out investment business, such as advising on endowment policies. The FSA will regulate mortgage advertising and require all mortgage lending activity to include specific disclosure of the main features of the loan.

The information brokers that give borrowers about the products they offer will be covered by the regulatory regime and must comply with FSA requirements. Lenders will only approve loans arranged by brokers when they are satisfied that borrowers have received full disclosure of all relevant information in this clear and easy to understand form.

Endowment mortgages can only be sold by authorised and regulated lenders and brokers under existing arrangements.

These changes will mean that, in many cases, firms in the mortgage lending industry will deal with a single regulator, the FSA. The FSA will consult on its policy approach and regulations, including their regulatory impact shortly.

Where borrowers believe that they have not been adequately advised or received redress from the broker or lender, they will be able to take their complaint to the financial services ombudsman.

These regulations will complement the voluntary Code operated by the Council of Mortgage Lenders. This has helped deliver welcome improvements, for instance in the competence and expertise of mortgage advisers.