In a recent article the UK Prime Minister, Gordon Brown, called for the abandonment of mortgages that are over 100% of a house price, suggesting we must return to “prudent and careful” lending. In light of the PM’s statement and in a bid to ensure that the UK does not repeat the mistakes of the past, the FSA are considering a number of actions to tighten mortgage lending regulations. Among these are to restrict 100%+ mortgages and to withdraw high multiple mortgages where a customer could borrow up to six times their salary.

In addition, the government has recently passed the new Banking Act which will allow the government greater ability to intervene to help troubled banks and consumers. However, this may well cause a higher degree of government involvement in the banking system which could be detrimental over the long-term. For example, Gordon Brown suggested that the growth of the banking sector in the UK can be partly attributed to the light touch regulatory environment and therefore any further regulation may cause financial institutions to move their operations elsewhere.

The potential changes have been met with some opposition, particularly because it was under Brown’s watch that the regulatory system failed to respond to the fact that some lenders were offering 125% mortgages. In addition, the Council of Mortgage Lenders have raised questions over the suggested changes to mortgage regulation. They suggest that 100% mortgages do have a place in the housing market. For example, it would be appropriate for an individual who needs to move home but is in negative equity and requires the funding to complete the transaction.