Banks called on to slash mortgage borrowing costs
The Financial Conduct Authority (FCA) has called on lenders to take informed risks in the mortgage market to improve consumer support.
The City regulator has launched a consultation on mortgage rules which targets reducing the overall cost of borrowing through term reductions and access to cheaper products when remortgaging.
It said discussions will include “consideration of risk appetite and responsible risk-taking”.
Speaking at the Building Societies Annual Conference on Wednesday Emad Aladhal, the FCA’s director of retail banking, called on the industry to take up “the gauntlet of innovation” and “use the flexibility [the FCA] aims to create to make meaningful progress”.
He said: “This isn’t just about the first rung on the ladder, we need a market that can serve everyone.”
Aladhal added it was a collective responsibility of lenders, developers, regulators and government to tackle the “structural challenges facing the UK’s current housing market”.
This comes after Nikhil Rathi, the regulator’s chief executive, told the Treasury Committee in March that lenders were overly careful on stress tests.
The test rules were introduced in 2014 and helped protect borrowers from the sharp rise in rates that began at the end of 2021.
Rathi said: “Already lenders can exercise judgment as to how they do the stress test, and we think that some may be being too cautious at the moment in the level of interest rate they’re stressing against.”
He added the FCA was looking into changes that could be made to the regulation of mortgage lending in order to boost home ownership.
Lenders in mortgage price war
Top UK lenders have been locked in price war as falling interest rates triggered banks to trim mortgage rates.
Barclays became the first FTSE 100 bank to drop rates after reducing two- and five-year fixed deals to 3.99 per cent.
This followed TSB, Coventry Building Society, Bank of Ireland and Co-op Bank cutting rates.
Markets have pencilled in four interest rate cuts for the year, which has led to banks scaling up competitiveness as borrowing costs reduced.
The Bank of England held rates at 4.5 per cent in March, down from a post-financial crisis high of 5.25 per cent last year.
The Monetary Policy Committee will make their next decision on 8 May.
The FCA’s consultation paper will close on 4 June, where it said it will open further discussions on the future of the mortgage market and conduct regulation in June.
The changes come amid the regulator’s five-year strategy to support the government’s mission for economic growth.