FSA Hammers Home Loans

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OF all Britain's markets in financial services, mortgages is one of the most competitive.

Anyone buying a home has had the choice of hundreds of offerings from suppliers ranging from the big banks to small building societies with an intricate knowledge of local communities.

Then along came the Treasury, which in the face of a rearguard action from the then head of the Financial Services Authority Sir Howard Davies decided that mortgages needed to be regulated. In the past, too many had been sold to unsuspecting home buyers with disappointing endowment policies attached.

This was a case of taking a sledgehammer of regulation to crack a nut and the results are predictably chaotic.

As we report today, many brokers have not received their firm's mortgage authorisation number which is provided by the FSA.

Some lenders have found it all but impossible to produce key documents online because of difficulties with IT systems. Others, including big lenders, have declined to email these key facts because of fears they might breach the Data Protection Act.

As is the case with all regulation, the consumer ends up paying.

Estimates vary but fees for taking out a mortgage are expected to rise by at least [pounds sterling]100. So the government has contrived to create a more expensive system, constrained by red tape in a market that was freely competitive.

But topping the list of unintended consequences will be the impact on smaller players in the market, including the communitybased building societies. The costs of running the system are so great that many look as if they will have to merge with bigger organisationsto spread the costs and gain access to computing systems.

As a result, we are likely to end up with much less choice in the system with a few super-mutuals like Nationwide, Portman and Brittania, and the big banks.

No doubt there will be some innovation with Tesco planning to dip into home loans in partnership with the Royal Bank of Scotland.

It is promising 'a simple, straightforward and great value option'.

It is a wonderful idea. But the FSA does not do simplicity.

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