Speaking as a guest on the Fairer Finance podcast, Nikhil Rathi, CEO of the Financial Conduct Authority (FCA), said people had more equity in their homes and there were fewer borrowers with interest-only mortgages.
When asked if the regulator was too quick to forget some of the lessons learned from the global financial crisis, Rathi said it was “mindful”, and working in the Treasury at the time, he was “well aware of the consequences when the risks are not managed effectively”.
However, Rathi said the number of adults still living at home, the cost of renting over someone’s lifetime and the wealth disparity that created made the regulator question what adjustments could be made to make mortgages more accessible.
“We made those changes, the market responded… we’ve seen a huge increase in first-time buyers,” Rathi said, adding that he had been “very clear” that there are benefits to this, but there would be moderate levels of distress.
Rathi said there may be a modest increase in people falling into financial difficulties as lending standards flexed, “but we don’t think we’re going to see anything like the levels of the 1990s recession or, indeed, the post-2008″.
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Rathi said the adjustments had made an average of £30,000 more available for mortgages, with 85% of the market responding and a “huge increase in first-time buyers last year.” He said “tens of thousands and potentially hundreds of thousands [of borrowers] over the life of this Parliament” would benefit from the changes.
However, he said it was important to acknowledge that the change in rules would not work out for all first-time buyers or older homeowners.
James Daley, managing director of consumer group Fairer Finance, said: “This was a remarkably candid interview, and credit to Nikhil for being so open about the pressures the FCA is under and the trade-offs they’re making.
“We are, of course, disappointed to see confirmation that the FCA is stepping back from tackling problems with new regulation. While the Consumer Duty provides a useful framework for the FCA to tackle poor conduct on a firm-by-firm basis, there are a number of wider market failures that won’t be addressed without new rules or much clearer guidance.”
Listen to the full podcast episode here.
