FCA chief executive Nikhil Rathi has shared his vision for the mortgage market of the future, suggesting interest-only mortgages, low-start lending and pension advances could all help groups who struggle to access lending get on the property ladder.
Speaking at the 30th anniversary conference of the L&G Mortgage Club, Rathi called for ‘bold-shifts’ to meet ongoing challenges, with system-wide collaboration between regulators, industry and government to build a mortgage market that makes sustainable home ownership more accessible.
Acknowledging the current market serves ‘millions of customers well’, with historically low arrears and possessions and a near-record number of products, Rathi said the mortgage market must adapt to changes in technology, demographics and preferences to support those who remain locked out of home ownership.
‘Can some of the nation’s £9 trillion of housing wealth be unlocked more effectively, and put to more productive use, particularly to sustain living standards in later life?’, he asked.
“What can we learn from others around the world who have tried new ideas? We need to begin answering those questions today – to deliver the market of tomorrow.”
Outlining recent changes to improve access to finance, Rathi pointed out that updates to recommendations on loan-to-income lending had enabled lenders to make more realistic and robust affordability assessments, resulting in an additional 36,000 first-time buyers being able to access mortgages each year.
But the FCA chief exec acknowledged structural challenges remain, with those unable to raise a large deposit or able to rely on support from family, the self-employed and those on irregular incomes, and people with minor credit impairments still finding it too difficult or expensive to get a mortgage.
‘Some of these groups are growing – and there is nothing unusual about them’, Rathi said.
“Without change, more are likely to rent for longer – with the proportion of people renting in retirement potentially more than doubling by 2041, perhaps requiring almost £400,000 more in savings than for those who own a home.
“The market and regulation needs to serve them better. We don’t have all the answers – but we want to give firms more options.”
The options suggested by Rathi include a return to interest-only mortgages – ‘with strong product design, quality advice, effective communication and support throughout the life of the loan’, low-start lending (with initial low monthly payments), and pension advances to enable home purchase.
‘While each would introduce new risks, we need to debate some bold shifts to meet the challenges we face’, Rathi said.
Innovation and the smarter use of data also have a crucial role to play in widening access, he added, with OpenFinance and AI about to ‘transform the mortgage market’ by looking beyond credit file data and using non-traditional data points in underwriting.
Later life lending is also a key area for discussion, the chief executive explained.
“Further thought and engagement is needed, but the aim is clear: an industry supporting consumers to fully understand their options for funding later life, receiving timely and appropriate support and advice, with products that deliver positive outcomes, offering fair value.”
Rathi welcomed the government’s consultation on proposals to improve the home buying and selling process, including streamlined AML checks and digital ID.
‘We have been grappling with these issues – affordability, an ageing society, and the future of the market – for the better part of a decade’, he concluded.
“So, shaping a new mortgage market for the future will be no small feat. It requires all of us – consumers, industry, regulators and government – to think differently.
“Ensuring we have a market that provides consumers fair value, high quality advice and support is crucial. But true reform must be system-wide.”
Photo credit: FCA
