A report by the Intermediary Mortgage Lenders Association (IMLA) said that the combined effect of the EU mortgage credit directive, following last year’s Mortgage Market Review, threatened to overwhelm the market.

The trade body said it accepted the ‘inevitable cost’ of improving regulation in the banking sector and averting another financial crisis.

However, it said buyers risked ostracising home buyers and others who did not meet the new rules.

It said the ‘sheer volume’ of new rules could mean consumer choice is reduced and the market becomes more difficult to navigate.

IMLA suggested the Financial Policy Committee (FPC) may have been too hasty when it implemented interest rate stress tests and limited high loan-to-income mortgage lending last summer.

Peter Williams, executive director for IMLA, said: “No-one is questioning the need for continued caution or the regulators’ responsibilities to put boundaries in place to ensure the mortgage market is sustainable in the long term.

“You could also argue that regulators and industry will naturally have differing views about what constitutes ‘normal’ or ‘healthy’ activity – and this is exactly why it’s in consumers’ interests to put a permanent forum in place where the two can put the vast tomes of new regulation under the microscope.

“We must ensure that future regulatory changes bring genuine benefits that warrant their costs, and do not weigh too heavily on consumer access. Every new set of rules takes us further into unchartered territory and heightens the risk of unintended consequences.

“Getting the right balance between safety, efficiency and choice is the biggest challenge facing the UK mortgage market and it will take a collective effort to hit the mark.”