The FSA will focus on sub-prime and lifetime loans in the second stage of its mortgage effectiveness review.
The regulator says it is concentrating on specialised areas where the risk of consumer detriment may be high.
It will also look at whether consumers are taking out suitable, good value mortgages and are treated fairly over the life of their loan, including when they fall into arrears.
The first stage of the review last year concentrated on disclosure, advice and selling practices in the prime market and found that consumers were actively shopping around.
However, the FSA discovered that cheap introductory offers in the mainstream market could lead to borrowers struggling to pay off their homeloans. It found that 41 per cent of customers chose a mortgage on price, focusing on initial payments rather than longer-term affordability.
Director of retail policy Dan Waters says: “This next stage of the review will focus on more specialised sectors where we think there is greater risk of consumer detriment. We will also look at the treatment of customers in arrears.”
Association of Mortgage Intermediaries policy adviser Vanessa Moore says: “It is no surprise that sub-prime and lifetime mortgages will be in the FSA’s focus. The review is high on AMI’s policy agenda for 2007 as the results could lead to a rewrite of MCOB.”