September 7, 2015 / 9:39 AM / 5 years ago

UK market watchdog to launch study of home loan market

LONDON (Reuters) - Britain’s Financial Conduct Authority (FCA) said on Monday it will study the mortgage market from early 2016, looking at how new, tougher rules are being implemented and affect the ability to buy a home.

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

The inability of many young people to afford their own home has become a major political issue in Britain.

Policymakers fear the situation could worsen as house prices increase and the Bank of England warns that interest rates are likely to go up in coming months.

Christopher Woolard, the FCA’s director of competition, said that Britain’s housing market posed challenges and “everyone seems to be in agreement that something not only needs to be done, but that our response must incorporate lessons from the past”.

Woolard said more competition could make it easier for people to buy a home in a country where 80 percent of the home loans market is served by just six lenders.

“If competition is functioning effectively, it should lead to lower prices, better consumer service and more innovation in the form of products that better address consumer needs,” Woolard said.

There was a need to ensure that regulation does not put an unnecessary constraint on competition, he added.

The FCA has powers to change the way markets operate in a bid to promote competition, now seen as a key tool to make markets more efficient.

The watchdog has introduced tougher rules for lenders in assessing a borrower’s ability to pay, known as the mortgage market review.

This reform has led to a dip in mortgage approvals compared with the far bigger drops predicted by critics, Woolard said.

There was a need to “remain sensitive” to the impact of the reforms over the long run, especially in how they are being applied, he said. Tackling affordability will involve a combination of factors and not just assessing regulation.

Reporting by Huw Jones, editing by Louise Heavens

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