Speaking to the House of Lords’ Financial Services Regulation Committee, Rathi said there had been very low numbers of repossessions of around 1,000 per quarter, but the relaxing of mortgage lending rules could see this increase to 1,500-2,000.
“You can’t do both. You can’t relax the rules and have no defaults. It [is] just what’s acceptable politically,” Rathi said.
“We want to have a discussion… on metrics of tolerable failure, which is difficult as economic growth and interest rates affect this. Is there a range that would be broadly political[ly] acceptable in Parliament to be held to account for and explain to you as we go along?” he added.
Rathi added that the flip side would be that relaxing mortgage lending standards would bring “a lot more first-time buyers into the market who are paying very high rents”, which would have a positive impact on the economy.
“Ultimately, that risk calculus is something we do need a bit of political guidance on, a political discussion on, and it needs to stick,” Rathi noted.
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Last week, the FCA wrote to the Prime Minister saying it will simplify responsible lending and advice rules for mortgages to support growth in the sector.
Rathi added: “We can see the enormous challenge the country is facing on growth. It is a very challenging situation for the country not to be generating wealth every year, and that is not good for consumers, because consumers in the United Kingdom need growth to generate the returns they need, so they have secure retirements and better living standards.
“There’s any number of things we can do, and what we struggled with in the past is to have a really open conversation about… what the risks may be if we go in a particular direction.”
He said the conversations he has been having with the Prime Minister and Chancellor on the secondary objective of competitiveness and growth would not have been possible several years ago.
“I think we can embrace this [secondary] objective, with a really good discussion with you in this committee and with others… What’s also important is… that once we get to a relatively good degree of consensus, that it endures over time, and that when the risks do crystallise, that suddenly there isn’t a reversal of position… because that then makes the system very difficult [to] oversee,” he noted.
