FCA reviewing bank risk appetite to boost home ownership
The Financial Conduct Authority has said it will review lenders’ risk-taking in its bid to boost home ownership.
The City watchdog said it was seeking a “public conversation” on the “future of the mortgage market” as it looks to support economic growth through an overhaul on mortgage rules.
An update to “responding lending rules” was cited as a key area by the regulator, as it looks to broaden sustainable home ownership.
It also targeted supporting groups underserved by market, including first-time buyers, the self-employed and those borrowing into retirement.
The FCA said the review would involve “consideration of risk appetite and responsible risk-taking”.
The latest Financial Lives survey released by the regulator revealed 29 per cent of adults, 15.9 million, owned the property they currently lived in. This was down from 33 per cent in 2023.
Conversely the number of renters jumped to 32 per cent at 17.5m, up from 29m per cent in 2017.
One in five adults with an interest-only mortgage said they were already paying off some of the capital.
Over 20 per cent said repayment plans included downsizing or selling the mortgage property and nearly 30 per cent were using savings or investments.
This follows calls from the regulator’s director of retail banking, Emad Aladhal, for the industry to take up “the gauntlet of innovation” and “use the flexibility [the FCA] aims to create to make meaningful progress” in mortgage lending.
FCA has pushed lenders on risk
David Geale, executive director for payments and digital finance at the FCA, said: “We want to evolve our mortgage rules to help more people access sustainable home ownership.”
The consultation will cover methods to cut the overall cost of borrowing, such as enabling shorter mortgage terms and making it easier for consumers to access cheaper products when remortgaging.
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 judgement 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.”
The regulator did note the “resilient” performance of the mortgage market remains, citing improved conduct standards and historically low default rates.
Charles Roe, director of mortgages at banking industry body UK Finance, said: “We welcome the FCA’s discussion paper on the future of the UK’s mortgage market, and its recognition that changes to current regulations are needed to support sustainable home ownership to stimulate economic growth.
“Whilst mortgage firms will always lend responsibly, we look forward to working with our members to identify ways the FCA could amend its rules to help more individuals get on to, and move up or down the housing ladder.”