Homeowners are to be afforded greater levels of protection as a result of changes made by the Government.
The package will ensure that repossessing a home will always be the last resort, while all mortgage regulation will now be controlled by the Financial Services Authority (FSA).
The Government said the package will help to improve consumer protection and financial stability.
The Treasury has said that the Office of Fair Trading will transfer the regulation of the second charge mortgage – known as secured loans – market to the FSA.
Often taken by vulnerable consumers, second charge mortgages are loans that are taken against a property, meaning that failure to make payments can result in repossession, although until now this hasn't had to be the last resort as regulation wasn't overseen by the FSA.
The measures will also insist that homeowners are treated fairly even when their mortgage has been sold on to an unregulated firm.
Banks can sell on a mortgage to a third party if payments are missed, with the new firm likely to be less sympathetic to homeowners in financial difficulties.
Regulation will also be passed that will extend the scope of the FSA's powers over the sale-and-rent-back market.
"Giving the FSA responsibility for the whole residential mortgage market will simplify the mortgage regulation landscape for consumers and lenders," said Mark Hoban, Financial Secretary to the Treasury.
"This will ensure that existing second charge mortgage borrowers who fall into arrears or face repossession on both first and second charge mortgages benefit from being regulated by a single organisation, maximising consumer protection and ensuring a more coordinated approach between lenders."
The new rules are expected to be drafted in before the end of the year.
"In principle the measures announced by the Government today are sensible," said Paul Broadhead, head of mortgage policy at the Building Societies Association.
"Any tightening of the underwriting criteria of first charge mortgages, through rules imposed by the FSA, has the potential to drive customers to other forms of credit, such as second charge mortgages. These loans are often more expensive and are subject to a different regulatory structure.
"Bringing second charges mortgages under the FSA remit will help ensure that there is consistency in regulation and could make it simpler for consumers."
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