Tougher mortgage regulation proposed

By Huw Jones

LONDON (Reuters) - The governmet unveiled plans on Wednesday for tougher regulation of the huge home loans market as fallout from the credit crunch highlights concerns about lax lending standards and fraud.

The government is proposing to expand the Financial Services Authority's remit to cover buy-to-let and second-charge mortgages or additional loans on a home that is already subject to a mortgage.

The FSA currently supervises primary mortgages, with additional loans regulated by the Office of Fair Trading.

There will also be tougher protection for borrowers whose lenders sell on mortgage books to third parties.

Loans worth up to 1.7 billion pounds have been sold by troubled lenders needing to shore up finances in the downturn. Some loans have been snapped up at discounts by hedge funds and private equity groups, the government said.

Sarah McCarthy-Fry, a junior finance minister, said the global financial crisis has raised issues around the world about regulation of the mortgage market.

"We are determined to reform the system for the future, to offer both stronger protection for consumers and greater stability in the housing market," she said in a statement.

But the plans may never come to fruition, at least in the Labour government's preferred form, with an election due by June next year.