Sub-prime mortgages, characteristically taken out by customers with poor credit histories, will come under scrutiny in a review from the Financial Services Authority (FSA), the regulator revealed this week.
In the report, due for publication in June, the watchdog will assess whether lenders are doing enough to communicate the details of products to customers and sell them fairly.
The FSA will interview customers to establish the quality of their experiences with banks, particularly focusing on how banks treat sub-prime customers who find themselves in arrears.
Sub-prime mortgages currently account for six per cent of the mortgage market in the UK.
As a follow-up phase to its review of the effectiveness of the overall mortgage sector last year, the FSA's director of retail policy Dan Waters said he hoped "this next stage" would focus on "more specialised sectors where we think there is greater risk of consumer detriment".
Meanwhile, moneysupermarket.com's head of mortgages Louise Cuming highlighted the paradox that the highest mortgage rates are charged to the most vulnerable customers through sub-prime products, calling for improved consumer protection.
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