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Watchdog To Investigate Sub-prime Loans

The sub-prime mortgage market will come under scrutiny, as the Financial Services Authority (FSA) is to investigate whether sub-prime mortgage borrowers are getting a good deal from lenders.

The FSA is keen to find out whether those with poor credit histories looking for home loans are being treated fairly by lenders and are being offered mortgages that are suitable and offer good value.

The concern regarding the sub-prime lending market has been prompted by the news that thousands of sub-prime borrowers in the US are struggling to repay their debts. Subsequently there is a fear among analysts that this current crisis in the US may lead to a crash in house prices, as defaulting borrowers have their homes repossessed.

The sub-prime lending market is worth billions of pounds as borrowers have poor credit ratings and are therefore charged a premium rate of interest for their credit.

Dan Waters, director of retail policy at the FSA, said: "This next stage of the Mortgage Effectiveness Review will focus on more specialised sectors where we think there is a greater risk of consumer detriment. We will also look at the treatment of consumers in arrears."

The FSA's concerns regarding the sub-prime mortgage market centre on whether or not their regulation of the market adequately protects sub-prime borrowers. It has stated that the risk of consumers losing out "may be higher" in the sub-prime mortgage market.

The watchdog hopes to complete their investigation by the end of the year and may consider some changes to mortgage regulation rules.

Last year saw the FSA complete a similar investigation into the UK's mainstream mortgage market. That investigation revealed that, currently, consumers are better informed regarding mortgages than in the past as well as shopping around more frequently for the best mortgage deal.

Alisdair Milton
20th April 2007


More Information:

  • Your Home Is At Risk If..
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  • Your Credit Rating And Your Mortgage
    Your credit rating is something that contrary to popular belief you can have some control over. Here’s how and how it might affect your mortgage application.
  • The True Cost Of Your Mortgage
    It’s easy to say “go and research the market place to find the cheapest mortgage”, but is it that easy to actually do it and how do you know that you have really got the best mortgage deal when you’ve finished?

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