Speculation had been rife that Lord Turner would impose a cap on mortgage lending of no more than three times a lenders’ income. The report hints at this, saying:

“The introduction of product regulations limiting mortgage loan to value LTV or loan to income (LTI) ratios merits consideration.” However, the mortgage market review will not be published until September.

According the Turner Review, the UK has not imposed either legal restrictions or non-statutory restraints through guidance on mortgage LTVs or LTIs since the 1970s.

The report added that potential rationales for the regulation of mortgages include protecting customers against the consequences of reckless borrowing, protecting solvency against the consequences of imprudent lending and constraining rapid credit growth and excessive property rises.

However, the review also noted that mortgage regulation could have its restrictions; including being disadvantageous to first time buyers and it may encourage people to borrow money through other means like loans and credit cards.

Commenting on the report, Michael Coogan, director general of the Council of Mortgage Lenders, said: “We welcome the opportunity to explore the pros and cons of limitations on products in a rational way. And we agree that this needs to be done alongside an assessment of alternative ways of regulating to achieve the same risk-mitigating objectives.

“We see the FSA’s September paper on the future of mortgage regulation as a real opportunity to help shape a future regulatory landscape that will serve both lenders and consumers better.”

The Turner Review, which was commissioned by the Chancellor, also recommended a number of reforms which could prevent another financial crisis, including fundamental changes to bank capital and liquidity regulations.

Commenting, Lord Turner said: “The changes recommended are profound, and the banking system of the future will be different from that of the last decade. The world’s economy will be better served as a result.”

© Fair Investment Company Ltd