Andrew Bailey, governor of the Bank of England, has laid out the "risks and the vulnerabilities" around easing mortgage lending rules.
Earlier this month, the FCA responded to government calls for regulators to support growth in the mortgage market, outlining a series of regulatory changes it plans to introduce in 2025.
In a letter to the Prime Minister, Chancellor, and Secretary of State, FCA chief Rathi said the regulator is "already working to remove unnecessary regulation".
Rathi revealed that the FCA will "go further", beginning to simplify responsible lending and advice rules for mortgages, "supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults".
Speaking to the Treasury Select Committee yesterday, Bailey said he was “very happy to have a very open public debate” surrounding mortgage affordability and regulatory change, but says the existing rules have provided "better outcomes" for borrowers during recent economic shocks.
Bailey said: “They have helped to avoid the creation of a large tail of mortgages, which, when we have the inevitable cyclical downturn or shocks that hit the economy, turn out to be a real problem of the sort we have seen in the past, So I think that has been beneficial.”
He added that it was "right to have this debate about the balance between growth and regulation", but believes "financial stability is a foundation for growth. There isn’t a trade off in a fundamental sense."
“Our key job is to lay out the risks and the vulnerabilities... To say this is what we think the risks are and this is what you need to know", he concluded.
His thoughts mirror those of the FCA’s chief executive, Nikhil Rathi, who recently warned that easing mortgage rules could increase defaults and fraud.
Speaking at the House of Lords financial regulation committee last week, Rathi said: “One or two things are going to go wrong here and not everybody is going to play completely by the rule book, and is there acceptance of that?
"Last year, the Mortgage Charter was introduced because there was a political consensus around not having defaults and repossessions, and we were asked to do everything we possibly could... to keep people in their homes and stop them defaulting. That's not going to be compatible with relaxing lending standards."
Discussing what is an "acceptable range of failures" relating to defaults and repossessions, Rathi asked the committee: "If the numbers went up from 1,000 to 2,000, if we relax lending standards, would that be an acceptable outcome here in Parliament, or would you say to us 'Why on earth have you let it go up by 100%?'"
He added that relaxing the rules could lead to a rise in fraud, stating that “there could be more money mules that get through the system”.
However, Rathi noted "the benefit of that, the other side, is you potentially could allow a lot more first-time buyers into the market who are paying very high rents right now".
"So there are positive benefits for the economy", he said, "but ultimately, that risk calculus is something we do need a bit of political guidance on, a political discussion on, and it needs to stick over time".
