FSA 'sees mortgage lenders as drug dealers'

The chairman of the Council of Mortgage Lenders said the Financial Services Authority (FSA) saw consumers as "wanton children" who did not know what was good for them.

He said through its proposed reforms to the mortgage market, the regulator was attempting to wrap customers in cotton wool and make borrowing risk free.

Matthew Wyles said: "Increasingly, I also have the feeling that regulators see lenders and intermediaries as the sweetshop owners - or worse, the drug dealers at the school gates - of the mortgage market, enticing innocent consumers in and then getting them hooked, for their own evil profit-driven purposes."

The FSA set out proposals for "more intrusive regulation" last month, including the introduction of mortgage affordability tests, and a ban on self-certification loans and mortgages that contained a combination of high-risk characteristics.

But Mr Wyles warned that if the FSA moved away from the principle of caveat emptor, or buyer beware, it did so at great peril.

He said such a move could create the kind of moral hazard the FSA wished to avoid, with consumers feeling they needed to take little or no responsibility for their own financial decisions.

Speaking at the CML's conference, he said: "That's not to say we want consumers to lack adequate protection from their own financial naivety or lack of experience - of course we don't. But there is a balance to be struck."

He warned that the regulator's plans to get lenders to verify all borrowers' income could asphyxiate the market and add extra costs and time delays to mortgage applications.

He said: "It seems we're not even going to be allowed to rely on the borrower's assessment of what they spend on food, booze and fags - but the "feasibility" tests we're going to have to apply sound pretty clunky, and costly, for consumers."

He added that in most cases where borrowers found they were unable to pay their mortgage, it was not because they had underestimated their normal spending, but because of changes in circumstances, other credit commitments and financial shocks, which affordability models could not prevent from happening.

He also called on the FSA to "think hard" about the problems that could arise from its rule changes for borrowers who already had mortgages which they were paying "perfectly well", who would find it difficult to get a new mortgage in future.

Mr Wyles said: "The FSA doesn't seem to mind if these people drop out of the mortgage market."

He called on the regulator to use the consultation period to work with lenders to ensure its new rules did not create unintended and damaging side-effects in a market that would still be fragile when they came into force.