Labour in mortgage crackdown

The Labour Party is considering regulating the sale of mortgages for the first time if elected, in a radical move bitterly opposed by the banking industry.

The sale of long-term care products is also to be brought within the ambit of financial services regulation, as part of new initiatives aimed at protecting the consumer.

Mike O'Brien, Labour's City spokesman, said this weekend that the moves were designed to protect housebuyers and the elderly from being mis-sold risky mortgage and long-term care policies.

"We have had a lot of concern about mortgages not being regulated properly," he said. "Long-term care is also a scandal waiting to happen. We want to get the market regulated so people can have confidence in products."

During the1980s housing boom, hundreds of thousands of people were pushed into inappropriate endowment rather than repayment mortgages because of the valuable commissions earned by "advisers".

Many lenders have now stopped selling endowments altogether, because of the extent to which they were discredited.

Long-term care plans - where people typically took loans out against the equity in houses to provide for retirement - also left many destitute as the housing market collapsed.

By regulation, possibly through amendments to the Financial Services Act, Labour intends to avoid any repetition, especially as the housing market enters another boom.

Gross mortgage lending accelerated to pounds 19.8bn in the final quarter of last year from pounds 14bn in the first quarter and is expected to rise further in 1997 as prices pick up.

Lenders wish to see voluntary regulation, however, with a pre-emptive code of practice due to be issued in late March after a year-long industry consultation.

"We recognise the mortgage market is extremely complex," said a spokeswoman for the Council of Mortgage Lenders, which represents 122 banks and building societies.

"We would like to see the voluntary system prove itself before expensive and bureaucratic legislation comes in. The costs of compliance are only passed on to the consumer." Mr O'Brien said he would seek a meeting with the Council shortly.

Labour is also disappointed at City regulators' progress in resolving the pensions mis-selling scandal, where thousands of people were wrongly encouraged to switch out of occupational schemes after deregulation in the 1980s.