Secured loan lending may come under FSA regulations

Secured loans – often called second mortgages – may come under FSA regulatory control according to new proposals.

As part of a package of proposals, the Financial Services Authority (FSA) is proposing to extend its regulatory authority to secured loans, or second charge mortgages.

Secured loans, which are additional borrowings taken out using equity in a house, have previously not been covered FSA regulation.

It has been assumed that an existing mortgage borrower is well placed to understand the risks of extending their mortgage liabilities on their home. Also second charge loans (secured loans) have only been a small percentage of the overall mortgage market.

The FSA is seeking to ensure greater affordability of mortgages in the future and therefore wants to ensure that additional borrowing against property, such as secured loans, also falls within these regulatory requirements.

The scrutiny of second charge lending is one of a number of proposals to create a more sustainable mortgage market in the future. Other proposals include the banning of self cert mortgages and greater regulatory control of buy to let mortgage lending.

Although these changes to the home owner loans market are currently just proposals made by the FSA, it will require government support and legislation changes to bring these suggestions into effect.