The regulator will not release its Mortgage Market Review proposals until autumn at the earliest in a bid to reach a social consensus.
The Financial Services Authority was due to publish its proposals in July, but its chairman Lord Adair Turner says the reforms need further debate.
Speaking at its annual public meeting in London last week, Turner told the audience the regulator is worried that if it bans riskier lending practices this will lock out potential good borrowers from the mortgage market.
He says: “If you knew in advance that mortgage lending to a customer group with specific characteristics had a 15% chance of resulting in arrears and repossessions, would that be too high?
“We will protect the 15% from repossession, but at the expense of restricting the freedom of 85% of that group to make a stretching but still affordable commitment.”
He adds: “The analysis required to enable an informed debate on this issue needs to be of the highest quality and clearly presented. This means we will not be publishing our proposal before early autumn but I trust that when it is forthcoming, it will generate the engagement that this important question deserves.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, says: “It remains important for the FSA to take stock and assess changes already made to prudent regulation and supervision before pressing ahead with prescriptive rule changes.
“Once this analysis has been done targeted proposals can be introduced that prevent consumer detriment.”
But Robert Sinclair, director of the Association of Mortgage Intermediaries, says: “The delay is a double-edged sword. While it will allow us to have more certainty on the direction of travel in Europe, business decisions continue to be blighted by a lack of regulatory certainty.
“We had heard a softening in tone from the FSA in recent months, but until we have a formal publication firms have no clear guidance on what they might expect.”