The government is to review the mortgage business in the UK, following concern that lenders are not passing on interest rate cuts to home owners.

Ministers are considering introducing regulations on home lending for the first time.

The government has issued a consultation document on the mortgage industry to help it decide whether voluntary regulation is enough.

It believes that borrowers are paying hundreds of pounds a year more than they should because banks and building societies sometimes fail to lower loan rates when the Bank of England cuts its base rate.

Economic Secretary Patricia Hewitt said: "We do not know enough about whether people are getting a good deal or a bad deal out of the mortgage market.

"We are conducting a wide-ranging review to get a better picture of what is going on and of borrowers' concerns. This consultation will help us to do that."

Currently, mortgage lending is subject to a voluntary code of conduct, while other financial advice, for items like pensions and investments, is subject to strict regulation under the Financial Services Act.

Lenders introduced a code of practice in February in a bid to stave off legislation.

Now, Chancellor Gordon Brown may warn lenders to pass on base rate cuts - or face statutory regulation.

Even though there was a 0.25% base rate cut in June, most banks and building societies reduced rates by only 0.05% to 0.15%. They said they needed to maintain competitive savings rates.

The Bank of England base rate has dropped 2.5% in a year, and now stands at 5%, its lowest for 30 years.

Review of more 'rip-offs'

The government review will also consider the mortgage mis-selling scandal, when many borrowers were persuaded by salesmen to take out endowment mortgages, even when these were unsuitable.

It may also look at clauses forcing home owners to take out uncompetitive insurance. There are also concerns over the practice of locking borrowers into the variable rate for long periods after a fixed or discounted rate has ended - another move which can cost hundreds of pounds a year.

Officials say they will weigh the likely benefits for customers of imposing regulation against the likely costs to lenders and intermediaries - costs which will be passed on to customers eventually.

They say the Financial Services Authority (FSA) could consider a system of authorising mortgage advisers. It could also regulate mortgage advertising and disclosure of all details.

The review will include a public seminar in a bid to find out whether consumers are getting a good deal.

The consultation ends on October 22 and ministers will decide by the end of the year whether the FSA should regulate the marketing of mortgages.