The Financial Conduct Authority has called on the government to set an acceptable level of mortgage defaults if lending rules are relaxed.
FCA chief executive Nikhil Rathi said: “Easier lending will lead to more defaults. You can’t have both at the same time.”
He added: “We need to have a conversation about parliament’s risk appetite.”
The council’s watchdog addressed the House of Lords Financial Watch Committee today.
Lartie appeared before the committee after Prime Minister Keir Starmer and Chancellor Rachel Reeves wrote to regulators calling for an easing of business red tape to free the UK economy from persistently low growth.
The regulator responded last week saying it wanted to “work with you in a fundamentally different way to support the growth mission.”
On home loans, it said it would “start to simplify rules for responsible lending and mortgage advice, support home ownership and open discussions on the balance between the lending pipeline and default levels”.
The agency added that it would also “consult on the removal of interest-only mortgages at maturity and other outdated guidance” and “work with the government to remove overlapping standards” such as the Mortgage Charter.
However, speaking before lawmakers today, he explained that the mortgage market is currently seeing around 1,000 repossessions per quarter, “which is an all-time low”.
He added: “If it were doubled, would it be acceptable to Parliament? There needs to be a debate.
He said Parliament needed to provide the agency with a “metric of tolerable failure”, outlining the extent to which consumer harm and financial misconduct in the sector was acceptable as the government pushed for growth.
Pressure on governments to loosen red tape has fueled fears of a return to the “loose” financial regulations blamed for the 2008 banking crisis.
But FCA chairman Ashley Alder, who sat with Rathi, told peers, “We are not going back to light contact.”
Alder delivered the same message to the committee last month, adding that weak regulation in the early 2000s “ended in tears.”
However, the government’s growth drive has already had an early impact on regulators and agencies.
Today, Doug Gurr, the former head of Amazon UK, was appointed interim chairman of the Competition and Markets Authority “to promote growth and support the economy”.
He succeeds Marcus Bokkerink, who served for just over two years.
In November, Homes England chairman Peter Freeman and chief executive Peter Denton announced their resignations after receiving a letter from Housing Secretary Matthew Pennycook setting out higher 2025 homebuilding targets.
