A statement issued by the Treasury to Mortgage Introducer said: "The coalition government believes that it is right for the FSA to ensure that the UK mortgage market has responsible lending practices. This will ensure a sustainable market that works better for consumers.
"We will continue to work with the FSA, mortgage lenders and consumer groups to ensure a mortgage market that is sustainable for all participants."
The industry has had mixed reactions to the consultation paper, which was published on Tuesday this week and proposes making income verification mandatory for all mortgages.
If the proposals are pushed through in the Autumn Mortgage Market Review, self-certification and fast-track mortgages will be eliminated from the market.
The paper also calls on the industry to debate whether interest-only mortgages should be banned and what the future should be for non-bank lenders.
Michael Coogan, director general of the Council of Mortgage Lenders, said the proposals will limit customer choice.
And he added: “Grant Shapps talked about the age of aspiration for homeowners. I think these rules will be a barrier to people’s aspirations, affecting first time buyers predominantly. They will kill off those aspirations.”
Peter Williams, executive chairman of the Intermediary Mortgage Lenders Association, agreed with Coogan, and said he believed there were unresolved tensions across government on the subject of housing.
He said: “As Lord Turner’s speech to the British Bankers’ Association showed, I think we’re now going to see the technical arguments about the mortgage market give way to political arguments.
“These aren’t simple technical choices about whether you restrict x or y – they now have political consequences. The IMLA view is we run the risk of a regulatory response which is overstated and makes the market too restricted. That’s the issue that we’ll all be looking at closely.”
A statement from the Council of Mortgage Lenders also underlined the importance of the delivery of the FSA’s proposals.
“The government shares the aspirations of both the regulator and the industry in wanting a responsible, sustainable market,” it said. “The question, though, is what measures really deliver that in practice. As always, the devil is in the detail and much will depend on how the FSA goes about implementing its proposals.”
Paul Broadhead, director of mortgage policy at the Building Societies Association, said the Treasury’s statement supported the FSA’s desired outcomes but that the detail of the proposals released on Tuesday may not achieve those outcomes.
He said: “Based on the Treasury’s statement I would back the FSA as well – the treasury is right to support a sustainable and flexible mortgage market. My question would be whether the current proposals will meet that objective.
“The FSA stated themselves that at the height of the market 46% of mortgage applications were non-income verified – will we end up with people without the documentation stuck on the same deal because they’re unable to remortgage?”
“I also think interest-only needs a lot of thought in terms of what the impact will be if we get rid of it,” he added. “There are an awful lot of people out there currently on interest-only deals which are working well for them. There needs to be some true consideration of the full impact of the detail of these proposals. And I would question whether that analysis been carried out.”
Robert Sinclair, director of the Association of Mortgage Intermediaries, agreed with the CML, IMLA and the BSA.
“I would always expect the FSA and the Treasury to have shared their high level thinking,” he said. “However, the detailed proposals laid out by the FSA have the potential to do significant damage to the long term mortgage market.
“We will be working to ensure that the Treasury and the FSA fully understand the implications of the steps they are now proposing. We believe that the good intentions set out in the policy paper are not underpinned by the details set out in the rules.”
