The financial watchdog says it is considering a ban on ‘toxic' loan combinations, including elements such as a high loan-to-value (LTV), interest-only and sub-prime in a single deal.
In a speech on the Mortgage Market Review (MMR) to the Council of Mortgage Lenders (CML) yesterday, FSA small firms director Lesley Titcomb, punctured speculation this week that a ban on LTVs over 75% was on the table.
She dismissed bans on loans above certain "loan-to-values, loan-to-income or debt-to-income thresholds as "blunt" tools.
The FSA will rule on the ban in a paper due out in July. The decision will be based on the regulator's analysis of 4.5 million loan transactions and the arrears levels on different types of loans.
"We want to stop problems before they cause widespread problems for consumers," said Titcomb.
In the progress report on the MMR, Titcomb also revealed regulation for the buy-to-let market is still very much up for review.
Titcomb suggested the potential buy-to-let offered some lenders a way to "get around any reform we bring to the rest of the market" making it a key area for investigation".
She said the issue remained under consideration and that the FSA was doing the necessary preparatory work to be ready if the decision is made to regulate.
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