There will also be tougher protection for borrowers whose lenders sell on mortgage books to third parties.

Loans worth up to 1.7 billion pounds ($2.81 billion) have been sold by troubled lenders needing to shore up finances in the downturn. Some of loans have been snapped up at discounts by hedge funds and private equity groups, the government said.

Sarah McCarthy-Fry, a junior finance minister, said the global financial crisis has raised issues around the world about regulation of the mortgage market.

"We are determined to reform the system for the future, to offer both stronger protection for consumers and greater stability in the housing market," she said in a statement.

But the plans may never see the light of day, at least in the Labour government's preferred form, with an election due by June next year. The opposition Conservative Party, which is tipped by opinion polls to win the election, has said it would abolish the FSA, casting doubt on the substance or timing of any mortgage reform. The credit crunch's origins were in the U.S. home loans market for people with a poor credit history. It spilled over into the broader financial system, helping to trigger and prolong a global downturn that hit the United States, Britain and Spain particularly hard, partly due to the big housing booms they had enjoyed. The government stepped in last year to delay repossessions as the recession deepened. Over 116,000 households benefit from lender forbearance on their home loans, the government said. About 70 percent of British homes are privately owned and mortgage lending in 2008 totalled 253 billion pounds. Annual buy-to-let lending has been riding a decade-long one way bet in housing prices from its introduction in 1996 to a peak of nearly 45 billion pounds in 2007 before the credit crunch sent borrowing levels tumbling. Mortgage fraud in the buy-to-let sector has also played a part in driving up arrears with an FSA review highlighting the scope for collusion between developers, estate agents and valuers, the government said. "Problems in the buy-to-let mortgage market could threaten institutions the failure of which would present systemic risk," the government said. (C ) Reuters