The regulator’s first ever risk outlook paper out last week said many lenders had failed to fully assess ways of offering interest-only before withdrawing from the market, fearful of retrospective regulatory action.
The regulator said: “While withdrawal from a product or market creates an opportunity for niche firms, the gap between withdrawal and the establishment of the niche market can leave consumer choices limited.”
He added a lack of strategic thinking under broader pressures may have been the reason for these withdrawals.
“This could lead to precipitous withdrawal of firms from business areas and products without fully assessing how they could continue to operate within the boundaries of new regulation.”
Martin Wheatley, CEO of the FCA, (pictured) said in a clear message to lenders: “So there are two sides to the risk equation – consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products.
He added: “The FCA must recognise that these are both risks and will need to navigate a careful path between them.”
HSBC was the last bank to restrict interest-only lending on 25 March solely to customers with an income of over £100,000 or £50,000 in savings with the bank, following Accord on Budget day.
This follows a raft of lender withdrawals from the interest-only space at the end of 2012. Nationwide stopped accepting new interest-only applications in October and was followed by other major lenders including NatWest, RBS, Coventry Building Society and Newcastle Building Society.
