HC Deb 06 March 2000 vol 345 cc516-8W
Dr. Cable

To ask the Chancellor of the Exchequer what arrangements he has to review prudential upper limits on loan-to-value ratios by mortgage lenders; what are the rules of the Treasury in setting prudential limits; if he will obtain and publish copies of the rules of the Bank of England and the Financial Services Authority relating to setting prudential limits; and when the prudential limits were last reviewed. [112516]

Miss Melanie Johnson

The Financial Services Authority and the Building Societies Commission are the independent prudential supervisors of banks and building societies respectively. All their prudential notes are publicly available. In carrying out their responsibilities, the supervisors take a wide range of factors into account, which includes assessing lenders' exposure to mortgage risks, and undertake regular reviews of market practice. It is a requirement of authorisation that banks and building societies should run their operations prudently, and they should apply a minimum 50 per cent. risk weighting to assets fully secured on land.

Mr. Sheerman

To ask the Chancellor of the Exchequer (1) if he will refer the commission and penalty charges levied by the Kensington Mortgage Company to the Financial Services Authority; [112774]

(2) what steps he is taking to improve the transparency of the conditions offered by mortgage lenders to their customers; [112773]

(3) if he will ask the Financial Services Authority to conduct an inquiry into the non-status mortgage lending sector; [112775]

(4) what recent discussions he has had with the Financial Services Authority regarding the activities of non-status mortgage lenders. [112776]

Miss Melanie Johnson

I announced on 26 January that the Treasury would give the Financial Services Authority (FSA) responsibility for regulating most residential mortgages. All mortgage lenders, including those which specialise in the non-status market, will have to be authorised by the FSA, with specific permission to lend on mortgage. All mortgage lenders will have to satisfy the FSA that they are honest, competent, trustworthy and solvent, before permission can be given.

Equivalised net disposable income
£ per week
Family type Two children aged 1 and 2 Two children aged 3 and 5
Dual earner couple—one working full-time1, one part-time 201.14 183.78
Single earner couple—one working full-time1 180.73 165.13
Single earner couple—one working part-time 136.69 124.89
Lone parent—working full-time1 260.83 229.53
Lone parent—working part-time 197.27 173.60
1 full-time assumed to be at 35 hours per week


1. Net disposable income is defined as earnings net of Income Tax and National Insurance and includes child benefit and entitlement to WFTC, it does not include entitlement to Housing and Council Tax Benefit.

2. Income has been equivalised using the before housing costs McClements scale.

The FSA will regulate mortgage advertising and require all mortgage lending activity to include specific disclosure of the main features of the loan.

I also announced on 26 January that the Treasury would set new benchmark, CAT standard (cost, access, terms) mortgages for variable and fixed or capped interest rate mortgages. Although voluntary, these will provide a yardstick to help borrowers make better informed, confident mortgage choices and avoid products which have in some cases caused detriment in the past. It is expected that CAT standards will be finalised shortly, following discussions with the mortgage industry.

The FSA will embark on a formal consultation process in the early summer and will consult on detailed rules for mortgage regulations towards the end of the year. Unauthorised mortgage providers will need to apply to the FSA by the middle of 2001, and the FSA expects to have the new regime in place by the third quarter of next year. The Treasury is in frequent contact with the FSA to discuss how these matters are progressing. However, it will be for the FSA to decide whether to initiate investigations into particular areas or firms in the mortgage market, once it has the powers to do so.

In the meantime, all mortgage lenders in the non-status market have to comply with the guidelines issued by the Director General of Fair Trading in November 1997. These guidelines include the need for transparency in all dealings with potential and actual borrowers, and to ensure they do not engage in unfair business practices. Failure to comply with the guidelines could call into question a firm's fitness to hold a consumer credit licence.