The Council Mortgage Lenders (CML) has warned that the mortgage industry will need protection if the Financial Policy Committee (FPC) is given new powers over the housing market.
The Bank of England committee looks set to be given a number of new tools to control the housing market, including loan-to-value (LTV) and debt-to-income (DTI) caps.
But the CML has questioned why the FPC feels it needs the power of direction over LTV and DTI caps, rather than recommendation.
It said that if the FPC does gain direction powers, it needs to put in place a parallel robust system of consultation on their use as a check and balance.
In its response to Treasury consultation on the new powers, the CML also called on the FPC to set out exactly which regulatory gaps it feels that it has to fill, given that the owner-occupier mortgage market is already so heavily regulated.
Paul Smee, CML director general, said: "Given the importance of the £1.3 trillion mortgage market, we recognise that it will inevitably be the sector that potentially bears the brunt of the impact of macro-prudential tools.
"We understand the need to hardwire in a clear understanding of how they would work in future, even though it is clear that no further intervention is needed under current market conditions."
The CML said the Treasury should publish an FPC review of the impact of recently-introduced LTI caps before deciding how to proceed.
And it called for lending to high-net-worth individuals should be excluded from any DTI limits.
Smee said that in contrast, the CML can see no justification for the exclusion of government schemes such as Help to Buy from the scope of the regulation, as currently proposed.
He said the market already takes extremely seriously the FPC's powers of recommendation. "So we are not sure what powers of direction add.
"If the Treasury does decide to give the FPC these special powers, we think it is crucial that these should be accompanied by an ongoing commitment to proper consultation and communication with those who would be affected by them."
The CML also said that caution is needed before applying any new rules on the buy-to-let lending market. It welcomed consultation on this, as it would be a major change with potentially unintended consequences.
The Treasury's consultation document was published in October and the CML response represented views drawn together from its members.
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