Treasury select committee chairman John McFall has fired a warning to lenders over practices such as 125 per cent and six-times salary mortgages.
Speaking at a Citizens Advice/Finance and Leasing Association fringe event at the Labour party conference, McFall said these loans are storing up problems for which lenders.
He said he had challenged several chief executives over these issues but found their responses unsatisfactory. He claimed they said it was too risky not to offer these products in case they lost market share.
McFall said: “I see trouble ahead due to the lending policy of some lenders, those offering six times salary and 125 per cent mortgages.”
He said he has written to Chancellor Alastair Darling and Treasury Economic Secretary Kitty Ussher warning of the potential dangers of sale and rent-back schemes.
He said these unregulated schemes, where firms buy struggling borrowers’ homes for below market value and allow them to continue living there, sometimes on huge rents, are an industry scandal waiting to happen.
McFall also attacked Conservative party leader David Cameron for focusing on the country’s debt in his response to the Northern Rock crisis.
He said Cameron was playing a “very dangerous game” as the Conservative party was “supposed to understand people were best looking after their own interests” and asked if Cameron was looking to introduce credit controls.