Woodall flagged the use of unregulated packagers as an issue it continues to monitor closely among mutuals, alongside other types of changing distribution models.
The move by societies to offer niche products such as shared ownership or equity, as well as bridging finance have also been noted, she said.
“There are also those who think that equity release may be ‘the solution’ to the interest-only maturity issue,” she added.
“We know that, by virtue of their size and way of operating, many societies can offer more flexible underwriting than your average high-street bank; which in turn can advantage borrowers with legitimate needs,” she said.
But she added that societies will have to evidence to the regulator and their boards why they are lending these specialist products and who they are lending to.
“We would also expect the associated risks built into these more complex and innovative products to be appropriately managed by people with the right level of expertise,” she said.
This followed a warning from newly-appointed, FCA mortgage lending director Linda Woodall, the regulator is ready to use its powers to ban products and advertising if neccesary.
Under the Financial Services Act 2012, the regulator can, without consultation, ban products for up to a year to minimise consumer harm. It can also impose an instant ban on financial advertising and promotions.
Woodall stressed the regulator would never use these powers casually and would prefer to stave off problems earlier at the product design and marketing stage.
The regulator also plans to evaluate industry preparations for the Mortgage Market Review due to start in April 2014 and start a second wave of readiness testing soon, she added.
