The Financial Conduct Authority is concerned about the availability of interest-only mortgages after a lender exodus from the sector over the past year.
In its first annual risk outlook, published last week, the FCA says a combination of uncertainty and increased changes means firms may not be making the right strategic choices and may be misinterpreting regulatory guidance.
It states: “[It] may make it difficult for firms to step back and strategically assess the adjustments they need to make to their business models and strategies to ensure future viability and sustainability.
“This could lead to precipitous withdrawal of firms from business areas and products without fully assessing how they could continue to operate within the boundaries of new regulation, for example, major firms restricting interest-only mortgages because of concerns about retrospective regulatory judgements on lending decisions.”
The FCA says consumer choices have been limited and it must ensure the “proportionality” of regulation, avoid regulatory failures and take account of economic stress affecting its reforms.
Earlier this month, HSBC and Accord Mortgages became the latest lenders to pull out of interest-only deals, while the vast majority of other lenders have either withdrawn or restricted their offerings.
The mortgage market review rules, which come into force in April 2014, scale back the use of interest-only by demanding more stringent repayment plans.
In March 2012, FCA chief executive-designate Martin Wheatley described interest-only mortgages as a “ticking timebomb” due to fears many borrowers have no repayment vehicle in place.
Mortgage lender consultant Mehrdad Yousefi says: “The interest-only debate has been going on for the last 18 months so the FCA must have woken up from a coma. It was started by the FSA and lenders have been implementing the regulator’s policies so maybe the FCA wants to change its interest-only stance.”
Separately, the FCA set out how it plans to use its new temporary product intervention powers under which products can be banned before the industry has been consulted. The FCA will be able to ban or limit the sale of a product for 12 months if consulting on new rules would cause a delay which could harm consumers.
The FCA is also launching a thematic review of lenders’ arrears handling procedures and forbearance management later this year.