In its latest proposals for the Mortgage Market Review, which has been designed to prevent irresponsible lending practices and reduce home owner loan arrears, the Financial Services Authority (FSA) said that it did not intend to place a maximum level on loan to value ratios for new home owner loans and secured loans.

Instead, it has introduced plans to ensure that new loans are affordable for borrowers, both at the outset and over the long term of the loan, allowing lenders to make their own judgements on loan to value levels.

However, the government has just introduced new proposals under the Financial Services Bill, which could lead to a restriction on the maximum loan to value level on a new home owner loan or mortgage.

This has led to concerns within the home owner loan industry that this could put off potential house buyers from taking out a new loan and buying a property, particularly in the first time buyer market, where many are already struggling to raise a large enough deposit to meet lenders’ maximum loan to value levels.

The Financial Services Bill is only yet in its second reading and has been designed to protect the country against a second credit crunch, as well as protecting the housing and home owner loan markets from over inflated house prices.

A spokesman for the Council of Mortgage Lenders said “We are nervous about it. However, the proposals don’t have much flesh on the bone yet, beyond the fact that this tool would have to be triggered by a financial crisis.”

“It’s fair to say we need to have a better understanding tan we have of the rationale for it and how it fits together with the government’s aspirations to help homebuyers and the home owner loan market, including its new mortgage loan indemnity proposals.”