Mortgage Restictions on the horizon Monday, 23rd March 2009

Could it be that the Financial Services Authority (FSA) imposes restrictions on the initial size of mortgages in the future?

A review of banking regulation by Lord Turner says there is case for limiting the size of home loans to protect people from borrowing too much.

What's more it might also protect banks from the dangers of excessive lending.

Hovever of course ther are some potential disadvantages to any such restrictions, and so the FSA will consult on the issue this autumn.

The rapid extension of mortgage credit is the key factor in the origins of the financial crisis in the US, the UK and several other countries.

The FSA's September paper on the future of mortgage regulation is seen as a real opportunity to help shape a future regulatory landscape that will serve both lenders and consumers better.

It would involve a fundamental change to its past policy if the FSA does decide to formally limit the size of mortgages.

To be published in September, the FSA's consultation paper will look at various methods of regulating mortgages, including formal limits on either the LTV or LTI ratios, The FSA's consultation paper,.

As well as protecting lenders and borrowers, limits on the mortgage market could also stop rising house prices exaggerating wider economic booms and busts.

However, there were some serious potential disadvantages to such a policy.

Because they would not be able to raise enough money for a larger deposit, thus preventing them from buying a house some people would be kept out of the property market.But restrictions on mortgage lending run the risk of stifling activity in the housing market and could cause more problems than they solve.