Yet again the Financial Services Authority, the City regulator, can be accused of closing the stable door after the horse has bolted.

Last week it published its review of the mortgage market, set up in the wake of the credit crunch, but lenders have already brought in most of the measures themselves.

The key proposal was to ban “liar loans”, which do not require proof of income. There are two types, though the FSA seemed unaware of the distinction last week.

Self-certified loans, designed for the self-employed who did not have the requisite two to three years of accounts, usually charged a higher rate to take account of higher risks.

Fast-track mortgages, on the other hand, are mainstream mortgages with standard rates, where the lender chooses not to check a borrower’s income because he or she satisfies other criteria, such as having a large deposit.

In 2007, most lenders offered self-cert deals. Now only one does so — Platform, part of the Co-operative Bank. Fast-track loans are trickier because they are a much bigger part of the market. Half the mortgages approved in 2007 did not require proof of income, but just 10% are thought to have been self-certified.

Having said that, arrears on fast-track mortgages are believed to be lower than on standard deals, suggesting the FSA should look elsewhere.

The proposal that provoked the biggest outcry, however, was that all borrowers’ spending should be checked to ensure they can afford a loan.

Most lenders already check affordability, basing the amount they will lend on your net income minus your outgoings such as credit card bills. However, the FSA suggests compelling borrowers to disclose discretionary spending such as food and drink, hotels and travel.

At first glance this seems intrusive, but I certainly had to provide three months’ bank statements when I took out my mortgage, meaning Cheltenham & Gloucester can already check how much I spend at Waitrose.

Some people will, of course, try to fiddle the system — opening two accounts and making direct debits out of the one the lender doesn’t see, for example — but most sensible lenders, and their customers, are acting in line with the FSA’s proposals anyway.

The regulator should have spent more time before the credit crunch checking lenders were in line with best practice, rather than making sweeping proposals after the event when the market has already self-regulated.

No, the biggest problem for most borrowers at the moment is interest rates.

The Bank of England’s latest credit conditions survey, out last week, showed the effective rate on new mortgages edged up by 0.1 percentage point to 4.3% in August. Not a huge jump, but it came as the cost of funding mortgages in the wholesale markets fell, suggesting banks and building societies are still not passing on the benefits of lower rates.

In an unusually frank admission, lenders also told the Bank that mortgage fees are likely to go up even as costs come down.

The average arrangement fee on a best-buy mortgage has already risen from £832 to £947 this year, according to research by propertydatingagency.com — a rise of nearly 14%. Fees on three-year fixes have increased from £729 to £936, or 28%.

The problem with the mortgage market has always been pricing — there is nothing inherently wrong with offering a mortgage to someone who cannot provide three years of accounts, or who doesn’t have a big deposit, so long as it is priced according to the risk.

Had lenders done this before the credit crunch, many of those who were encouraged on to the housing ladder might have decided they were better off renting instead.

The problem now is that lenders have gone too far the other way and sensible borrowers are paying the price.

If the margins between mortgage rates and Bank rate stay at current elevated levels, borrowers could be paying as much as 10% when interest rates get back to more normal levels of 4% to 5%, so it is in everyone’s interest that banks and building societies are made to treat customers fairly.

Kathryn Cooper is editor of the Money section

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