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Lord Turner stepped back from promising to crack down on 100% mortgages yesterday and intends to leave the crucial decision over whether to introduce specific rules for home loans to a new consultation paper to be published in September.
Turner admitted there were pros and cons to clamping down on the easy credit available before the credit crunch, when banks such as Northern Rock offered mortgages worth more than the home.
The loans become particularly onerous when prices fall and the FSA found that the proportion of products allowing people to borrow more than 100% of the home's value nearly doubled between 2005 and 2007, from 3.9% to 7.4%. His report pointed to the rapid rise in the availability of loans as a key factor in the financial crisis gripping the US and UK.
The FSA will also scrutinise the size of loans offered relative to salaries. The regulator found that since 1969 the average loan has risen from twice income to more than three times. Some borrowers have loans more than four times their income.
Turner was careful not to prejudge the FSA review but said limiting loan-to-value (LTV) and loan-to-income ratios "merits consideration". He also admitted, though, that high loan-to-value products were crucial for some customers. "If you have a requirement that says the maximum LTV ratio is 85% or 90%, the people who will find it the most difficult are those who do not have family or friends to help them in the deposit market. On the other hand, if you encourage them into these high LTV mortgages you can be encouraging them into debts they can't afford."
The September paper will also look at whether the FSA should regulate second-charge mortgages and buy-to-let mortgages, and try to analyse whether customers with high LTV and loan-to-income multiples are more likely to default on payments and in turn cause bank losses.
The UK did have controls on mortgages until the 1970s, and other countries such as Hong Kong maintain some limitations on loans.
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