Mortgage Effectiveness Review

The Financial Services Authority (FSA) is to up the ante on its investigation into the UK mortgage market, with a new focus on those consumers considered most at risk from mis-selling.

This will be the second stage of the FSA's Mortgage Effectiveness Review, and will focus specifically on sub-prime lending and lifetime mortgages.

This shift in emphasis comes at a time when there is increasing concern that lenders are engaging in irresponsible lending to consumers, who might not be able to afford repayments if circumstances change.

These doubtless would be the same lenders who gorged themselves during the endowment mortgage heyday in the 1980's.

Vernon Everitt, the FSA's director of retail themes, said:

"Although there are signs that the UK housing market is coming off the boil, the question is, to what extent are consumers prepared for the consequences of a weaker economic environment?

With recent base rate rises, the ratio of payments to income is creeping up and many fixed-rate deals are coming to an end, potentially increasing the vulnerability of both borrowers and lenders.

So given this climate, all the players in this market clearly need to think through their decisions very carefully indeed. We are, as you would expect, taking these issues seriously and have made debt and affordability one of our priorities.

Initially we are looking at this in respect of more vulnerable groups: the sub-prime market, interest-only mortgages and those taking a mortgage into retirement.

We want to make sure that consumers are not being offered sub-prime rates when they could be eligible for much better prime rates."

In other words, the level of consumer debt, and the rise in the housing market, make some people desperate and vulnerable to the actions of less than scrupulous lenders.

The question is, what does the FSA intend to do once it has completed its review?