According to the financial conduct authority, lenders are “too cautious” in granting first-time home purchase loans under current regulations.
FCA CEO Nikhil Rathi (pictured) believes that under existing regulatory rules, lenders have some degree of “flexibility” for their first-time stress tests for home buyers, who have not yet exercised them.
Rathi spoke to the Finance Committee this morning, which appeared as the city regulator released its five-year plan, committed to “simplifying” its priorities and adopting a less “provisional” regulatory approach.
But the leader of the UK’s largest regulator added that lenders could do more support to support the FBS, warning that loose lending inevitably means more defaults.
“It’s already possible to judge how they do stress tests, and we think some lenders are too cautious at the interest rate levels they emphasize,” Rathi said.
He added: “We know that many parts of the country have high rents and people may be able to pay these high rents obviously and they manage to maintain their financial position, but if their monthly mortgage payments are a little lower than that rent, it may still not meet some affordability tests there.
“We have to ask a question, is this a wise position we are entering, or do we need to show greater flexibility in the field?”
Rathi’s comments are 4.5 times the existing 4.5 times loan-to-income limit set in the UK’s financial requirements for relaxing last week.
Last month, there was also a nationwide call for a loan that was forced to return within the scope of its helper mortgage loans for the FTB because it risked violating current rules.
But Robert Sinclair, a senior consultant at the Institute of Mortgage Agency, agreed last month that flexibility would write it into some stress test rules.
“If a lender can justify his thinking, then the lender can exceed the standard variable interest rate plus a 1% ruling,” Sinclair said.
“Regulators think it’s already a gift from lenders and what they actually want is regulatory cover to do what they’ve already allowed to do.”
The FCA said it will negotiate with lenders and consumer groups on stress testing rules.
“We intend to relax the lending standards to allow more FTBs to enter home ownership, but we can’t do that, and by the same token, there will be fewer defaults.”
The FCA chief noted that the property is about 1,000 per quarter, which is a historic figure: “As the lender shows greater tolerance, we have the largest number of accounts, with debts owed more than 10% of the balance.
“So there is trade-off here, people are being kept at home, but the balance is accumulating.”
Regulators are under pressure to relax rules to boost growth in the UK after Prime Minister Rachel Reeves’s luxury home speech last November, saying the city companies’ traditional tape festival was “too far away” after the 2008 financial crisis.
Reeves added that she hopes Fang Yingli plays a key role driven by the government’s growth.
