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