The Financial Services Authority was today giving evidence to the TSC on the Mortgage Market Review.
TSC member Michael Fallon questioned Martin Wheatley, managing director of the Conduct Business Unit at the FSA, as to why the regulator was being so complacent about the time bomb and why it was just going to let it go off.
Wheatley admitted: “There is a ticking time bomb that has been created over the last 20 years, and what we are trying to do is make sure that time bomb does not get any worse.”
But Fallon responded: “But you are not defusing the bomb, you are making the rules for new borrowers but not tackling what I think is going to be quite a serious problem for a lot of people in their late 50s who are not going to be able to pay their mortgage.”
Wheatley responded by saying its regulations could not solve all the ills of the last 20 years, but said they can ensure that new mortgages are taken out with reasonable measures in place.
He says the MMR does include proposals to allow some existing borrowers to move home or remortgage without passing the current stringent checks.
Wheatley could not clarify how many people in their 50s have interest-only mortgages but said it was a large number.
Fallon also questioned whether there was a risk of moral hazard if a lender did not carry out the appropriate checks on an interest-only mortgage.
He challenged the FSA’s proposal that lenders only need check the repayment vehicle at the start of the term and at one point during, arguing this would allow lenders to get away with checking it just one year after the mortgage had been taken out and not again for the remaining term.
But Wheatley stressed that it would be a decision for the banks to make and that the regulator would have questions for a bank that adopted this kind of practice.