If the proposal is accepted, mortgage lenders must take on board the FPC’s stress test interest rate recommendation as well as taking into consideration “market expectations” and the 1% rule.
The Mortgage Market Review rules, to be implemented on 26 April, require firms to consider the impact of future interest rate increases on an applicant’s affordability over a minimum period of five years by 1%.
An example of “market expectations” is the forward sterling rate published on the Bank of England website.
The FPC will exercise this power if it feels market expectations are understated and pose a threat to financial stability.
But the 1% rule will remain in place even where the FPC makes a recommendation.
The FCA will retain the right to challenge any recommendation through its seat on the FPC held by its chief executive Martin Wheatley.
Any FPC recommendation will be communicated following its quarterly meetings.
The consultation period for this proposed amendment closes on 4 April.
