Now homebuyers may be forced to find 15% deposit

Lord Turner, chairman of the Financial Services Authority, today said banks could be prevented from offering huge mortgages such as those seen before the financial crash.

A 15 per cent deposit would mean buyers of an average London house costing £300,000 would have to raise £45,000 - well above the average wage of £32,000. It would mark an end to excessive lending practices of failed banks such as Northern Rock which was offering 125 per cent mortgages.

Lord Turner admitted the proposals needed further exploration and said the FSA would publish a paper on its findings in September. He highlighted that buyers who would struggle to raise such large sums and could end up being excluded from the housing market.

Lord Turner's review today also declared that the collapse of Northern Rock and HBOS would not have happened if tougher rules had been in place.

He unveiled plans for more stringent regulation of the financial system including curbs on City bonuses and casino-style risk-taking by banks in the City and at Canary Wharf.

He admitted the regulatory system set up by Gordon Brown when Labour came to power had failed. He said: "Changes recommended are profound and the banking system of the future will be different from that of the last decade."

Key to his review is a move to force banks to build up more cash reserves. The FSA will also investigate closer the risk-taking of banks. Lord Turner also called for increased scrutiny of hedge funds and credit-rating agencies, which are widely blamed for having contributed to the crisis.

Asked if such a regime would have prevented the failures of British banks, he said: "Yes. Had we had these processes in place 10 years ago they would have produced a very different financial system today." Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, said: "Restrictions on mortgage lending run the risk of stifling activity in the housing market and causing more problems than they solve."

Shadow chancellor George Osborne claimed the Turner review showed poor regulation by Mr Brown was to blame for the economic crisis. It was "a devastating critique of the last 10 years of economic policy", Mr Osborne said.