FCA to support home ownership with lending rules flexibility

Lenders could relax stress testing rules in an effort to improve access to mortgages as interest rates fall. The Financial Conduct Authority (FCA) is reminding lenders of flexibility in their mortgage rules as the current market approach to interest rate stress testing could ‘unduly restricting access to otherwise affordable mortgages’ says the regulator. 

The FCA has flexibility in its rules to give lenders the opportunity to lend to creditworthy customers and support home ownership says Chief Executive Nikhil Rathi in a letter to Economic Secretary to the Treasury Emma Reynolds MP.

In the letter Rathi says the FCA will launch a call for evidence in the coming weeks on current and alternative approaches to stress testing, adding the work being done on artificial intelligence (AI) and digitalisation, which ‘will be a key driver for growth and good consumer outcomes’ should inform the call the evidence. He adds the review will also take into account recent plans to digitise the home moving process announced by government, leveraging the work being done on a single source of digital identity, and access to more information about property.

“We are taking swift action to support people in getting the keys to their own home. Firms have the flexibility to help more people become homeowners and we want them to use it. There is more to be done, and we will be delivering further proposals quickly to support home ownership and the wider UK economy.”

he said.

Following the call for evidence the FCA, a consultation in May will consider remortgaging with a new lender; reducing the overall cost of borrowing through term reductions; options for consumer to engage firms outside a regulated advice process.

And in June the FCA will launch a public discussion on

• risk appetite and responsible risk-taking;
• alternative affordability testing and product innovation;
• lending into later life; and
• consumer information needs.

Sounding a note of caution Rathi concludes lessons from the financial crisis remain but ‘conduct and firm culture is far stronger now’

With the Consumer Duty we can deliver an outcomes-based approach, refining and simplifying standards to ensure a vibrant market in which all creditworthy consumers should be able to access a good value mortgage.

Welcoming the action Rachel Reeves, Chancellor of the Exchequer, said:

“This is welcome action by the regulator to kickstart economic growth and help working families get on the housing ladder. The world is changing. That is why we must go further and faster in delivering on our Plan for Change, so we can get more money into people’s pockets.”