Nikhil Rathi, chief executive at the FCA, admitted that, as it started its Mortgage Rule Review this year, "some reforms have not been met with universal approval among brokers".
Speaking at the L&G Mortgage Club 30th Anniversary Conference Rathi said the mortgage market is "serving millions of customers well", but said its Review is "not solely focussed on the current market".
He said: "We want to enable the mortgage market of the future – one that adapts to fast changing technology, employment and demographic shifts, and consumer preference, need and expectations, particularly in their later years."
"Our response must be bold. Focussed on outcomes, not orthodoxy", he added, stating that the FCA felt "compelled" to act in March, introducing a new approach to stress testing that enabled lenders to offer around £30,000 more on average.
Rathi negated warnings from the housing industry that the affordability changes will lead to house price inflation, stating: "While house prices are up modestly in nominal terms, there are regional variations and we aren’t seeing runaway real terms price increases – with several forecasts being revised down."
Future regulatory changes on the horizon?
Turning to the FCA's future goals, he said that for those without familial support, who have irregular income, or who have minor credit impairments, "the market and regulation needs to serve them better".
He noted that the interest-only mortgage "should not be the mass market product that it used to be", with sales of interest-only loans to first-time buyers currently close to zero.
But he mulled whether, "with strong product design, quality advice, effective communication, and support through the life of the loan, could part interest-only support earlier homeownership?"
He also highlighted the potential of 'low-start lending' beginning with only interest serviced, the option to deploy pension savings to enable homeownership, and a ‘Citizen’s Advance’ on the state pension, as potential ways to enhance mortgage lending.
"While each would introduce new risks – we need to debate some bold shifts to meet the challenges we face", Rathi said.
Enhanced later life lending
Rathi also highlighted that "advice and support will be vital to help consumers navigate options" in later life, to meet retirement goals and potential case costs.
He explained: "The mortgage market should be on hand to unlock wealth at the right time – when it’s needed, offering fair value, as part of a wider financial plan. Not as a last resort."
However, he believes the "shadow of legacy issues in the 90s may still shape some consumers’ – and advisers’ – perceptions of equity release".
In addition, he said that across pensions, investments, and mortgages "advice is often siloed", noting that "even mortgage advice is split between mainstream and equity release specialists".
In his speech to brokers, Rathi asked: "Should all mortgage advisers be able to advise on lifetime products? Would a market-wide referral scheme make the difference? Or reflecting housing wealth options in Pension Wise? Or do we need something more radical?"
Concluding, Rathi said: "We have been grappling with these issues – affordability, an ageing society, and the future of the market – for the better part of a decade. So, shaping a new mortgage market for the future will be no small feat."
