James Moore: From inactivity to hyperactivity... the regulator's folly

There's been a flurry of activity from Britain's financial watchdog in the last few months. Hardly a day goes by without the chairman, Lord Turner, appearing in the media with an eye-catching new initiative designed to clean up the banking industry here, or a wagging finger aimed at its bonus culture there.

But yesterday he left it to his subordinates to outline the regulator's prescription for restoring to health the mortgage industry, the part of banking that most ordinary people deal with day to day.

The trouble is, the plans are likely to make an awful lot of people sick. That's because if they are adopted in their current form, those people will be unable to buy a home.

Self-certification mortgages – those where customers do not have to prove their income – are to be banned. That's regardless of the fact that they are the only game in town if you happen to be a freelancer or small businessman without a three-year trading history.

Even those who have the history are going to find the process of moving home far more difficult than it was. These people used self-cert loans because it takes time to produce up-to-date accounts, time in which a prospective new home can all too easily be lost.

Many of the FSA's other measures – such as making lenders responsible for assessing whether customers can meet repayments – have already been widely adopted. The trouble is, if the new "get tough" FSA makes them compulsory, banks (and building societies) will inevitably lean towards keeping themselves in its good books by taking the most conservative option – and will simply say "No" to anyone who hasn't been in a rock solid job with the same employer for the past umpteen years. Just how many of those are there in today's world?

Yes, there were excesses in the run-up to the credit crunch (which was kicked off by dodgy US loans and the way they were traded, not by British ones), but the FSA itself admits that for 95 per cent of customers, the mortgage market has worked well. So why punish us all because a relatively small number of people have been silly?

It all smacks of the dead hand of the nanny state infantilising people "because they need protecting from themselves". The fact that this threatens to badly damage a housing market which is still dreadfully weak, not to mention add a whole new layer of paperwork and stress to the already tortuous process of moving in this country seems not to matter.

The FSA is desperately trying to justify its existence in the hope of staving off its likely closure by an incoming Conservative government. That next Government, whatever its hue, is likely to have all sorts of nasty unintended consequences to deal with as a result.

The inaction of the Financial Services Authority in the run-up to the credit crunch has been rightly condemned. But on yesterday's evidence, its hyperactivity in the aftermath could prove to be almost as damaging.