FCA chief executive Nikhil Rathi has acknowledged in a candid new interview that looser mortgage rules could lead to “additional problems” if interest rates rise significantly.
Speaking on the Fairer Finance podcast, released today, Rathi also hinted that the regulator has come under pressure from the Treasury to abandon its naming-and-shaming approach to companies that have broken the rules.
Moreover, he identified a greater role for late-life lending in the future of retirement planning.
Rathi discussed the impact of the relaxation of regulations that limited lenders’ ability to offer higher loan-to-income multiples, admitting that trade-offs were inevitable.
The changes have given borrowers access to an average of £30,000 in additional loans.
Rathi pointed out that last year’s reforms resulted in a huge increase in first-time buyers and he expects “tens of thousands and possibly hundreds of thousands” of borrowers to benefit over the course of the parliament.
But he said: “Over the cycle, over an interest rate cycle, that could mean a modest amount of additional difficulty if interest rates rise significantly.
“You can’t do both, but there are benefits and costs to any policy change.”
On the issue of publishing details of enforcement against companies, Rathi said: “The Treasury, I think, was not quite secretive about their position that they were not a big fan of transparency, about our actions when it came to companies.
“They were very convinced by the lobbying they received on that issue.
“Nevertheless, we are intensifying the way we communicate through our enforcement watch.”
He also suggested that equity release would play a greater role in the future, citing research from Fairer Finance which found that more than half of the population will need to access home equity to achieve the standard of living they expect in retirement.
Rathi said: “It is not good for society that people retire with an income that is insufficient for the standard of living they expect.
“And they have housing assets that are locked up that they can access.”
James Daley, director of Fairer Finance, said: “This was a remarkably candid interview, and it is a credit to Nikhil that he was so open about the pressures the FCA is under and the trade-offs they are making.
“We are of course disappointed to see confirmation that the FCA is taking a step back in addressing issues with new regulations.
“While the Consumer Duty provides a useful framework for the FCA to tackle bad behavior on a company-by-firm basis, there are a number of wider market failures that will not be addressed without new rules or much clearer guidance.
“Nikhil’s comments will also be difficult to read for those campaigning to abolish the poverty premium.
“While there are certainly a number of social policy issues where the FCA needs the government to take the lead, there are a number of areas that are within the FCA’s remit to address.
“In particular, the credit card market remains dependent on unfair cross-subsidies, meaning those who are least financially resilient are the better off.
“These business models are demonstrably in breach of the FCA’s fair value rules, but it seems unlikely that the FCA will tackle them in the current political climate.”
Listen to the full podcast interview on the Fairer Finance website or by searching ‘Fairer Finance’ on the major podcast apps.