(Adds industry reaction)
By Huw Jones
LONDON, Dec 12 (Reuters) - Britain's financial watchdog haslaunched a full review of the 1.3 trillion pound ($1.6trillion) mortgage market to see if customers could get betterdeals and whether links between industry players limit choice.
The high cost of buying a home in Britain, exacerbated by ahousing shortage, has put ownership out of reach for many peopleand the government is under pressure to address the problem.
The Financial Conduct Authority (FCA) originally startedlooking at mortgages in October 2015 to see if there were partsof the market where competition could be improved.
Its full review was announced on Monday.
"As a mortgage is likely to be the biggest financialcommitment most people make in their lifetime, we're keen toensure that competition in the mortgage sector is healthy andworking to the benefit of consumers," Christopher Woolard, theFCA's executive director of strategy and competition, said.
There are 11.1 million home loans in Britain totalling 1.3trillion pounds, of which 220 billion pounds was borrowed in2015, according to the Council of Mortgage Lenders (CML), anindustry body.
The watchdog's review will focus on residential mortgages,the process of switching products with the same provider andremortgaging with a new one. It will not look directly atcommercial or buy-to-let loans.
It will also look at relationships between lenders, brokers,price comparison websites and other services such as estateagents, surveyors and conveyancers to see if they affectcompetition in the mortgage sector, the FCA said.
Property developers who introduce consumers to lenders andbrokers will also be looked at.
The watchdog said some customers might be coming underpressure from estate agents to use certain brokers if they wantto view or secure a property.
"We are interested in exploring the incentives estate agentshave to refer consumers to use their in-house broker and whetherthis leads to worse outcomes for consumers," the FCA said.
The CML said it was helpful that the review would look atthe whole range of players in the house-buying process, as wellas the potential offered by technology to make it easier forcustomers.
"The FCA's rule changes in 2014 created a seismic shift inhow mortgages are sold. It is entirely right that the regulatorreviews their effect, as well as how commercial relationships inthe market have developed in the light of the new environment,"said Paul Smee, CML director general.
The watchdog has powers to improve competition by writingnew rules, asking specific firms to change their behaviour,sanctions, or publishing general guidance.
It could also refer parts of the industry to the Competitionand Markets Authority for further investigation.
The FCA will publish its interim findings and "possibleremedies" next summer, with a final report in early 2018. (Reporting by Huw Jones; Editing by Rachel Armstrong and RuthPitchford)