FSA mortgage reforms branded a 'catastrophe'

The city watchdog came under renewed fire over its mortgage reform plans yesterday, with another housebuilder warning of a devastating impact on the housing market if the Financial Services Authority refuses to change course and the builders' trade body accusing it of "driving first-time buyers" away from the market.

MJ Gleeson, which operates mainly in the North of England, said sales were running at half the levels they should be as first-time buyers were able to secure financing from banks.

That view was backed by the House Builders Federation which said the strict affordability tests being proposed by the Financial Services Authority would be "catastrophic" for a housing market which is already showing signs of stress. Official figures show that mortgage approvals are running at half the historical run rate as prices spiral down again.

There is mounting controversy over the FSA plans, which the Council of Mortgage Lenders said would effectively have banned 4 million mortgages from being sold had they been imposed over the past five years, even though 95 per cent of the borrowers who took out those loans were currently meeting their obligations.

MJ Gleeson said market conditions were improving, with visitors to its site up more than 15 per cent, private completions up 26 per cent and overall unit sales up 47 per cent during the three and a half months to 19 November. But it lambasted "the policy vacuum created by the Coalition Government's failure to clarify the details of its proposed changes to the planning system" and warned that the lack of mortgage availability was badly hitting sales.

Alan Martin, MJ Gleeson's chief operating officer and finance director, also said there was a "huge pent-up demand" in the country for housing that the FSA's planned restrictions "will not allow to be fulfilled".

He added: "If they insist on putting these rules in nothing will ever change because the availability of mortgages can't increase. The banks are wanting people to save for deposits up to £50,000, which is unrealistic. If people have a blemish on their credit histories they will be refused. If people haven't had credit before they will be refused because of the lack of information about them."

Mr Martin said his company was considering holding a series of site visits for local MPs in the hope they would persuade the Government to intervene. The CML has also called for ministerial intervention.

The FSA declined to comment on the latest criticism, pointing only to a speech made by Sheila Nicholl, the director of the its conduct policy division, on Thursday. She said then: "Any suggestion that the FSA is determined to implement a particular set of regulatory measures, irrespective of their impact on the economy and the market, is a completely false view and one which is not in any way consistent with either our statutory obligations or the positioning of the material we have published to date."

However, she defended the watchdog's Mortgage Market Review, arguing that regulators had found problems with the way home loans were being sold before the financial crisis. She said the role of the review was "to tackle the root causes of consumer detriment, whether actual or potential, and ensure that we have regulation that is fit for purpose across the economic cycle".

A Treasury spokesperson said: "The Coalition Government welcomes the FSA's Mortgage Market Review, and encourages interested parties to engage constructively in the consultation process. The Government will continue to work with the FSA, mortgage lenders and consumer groups to ensure a mortgage market that is sustainable for all participants."