The Financial Conduct Authority has called on the government to lay out a level of mortgage defaults that are acceptable if it relaxes lending rules.
FCA chief executive Nikhil Rathi said “more relaxed lending would lead to more defaults. You cannot have both at the same time”.
He added: “We need to have a conversation about the risk appetite of parliament.”
The City regulator was speaking to the House of Lords financial regulation committee today.
Rathi appeared before the committee after the Prime Minister Keir Starmer and Chancellor Rachel Reeves had written to regulators to ease business red tape to allow the UK economy to escape its persistent low growth.
The regulator replied last week saying it wanted to “collaborate with you in a fundamentally different way to support the growth mission”.
On home loans, it said it would “begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults”.
The body added it would also “consult on removing maturing interest-only mortgage and other outdated guidance” and “work with government to remove overlapping standards” such as the Mortgage Charter.
However, speaking in front of lawmakers today he explained that the mortgage market currently sees around 1,000 repossessions a quarter, “which is a historically low figure”.
He added: “If that was to double, would that be acceptable to parliament? A debate needs to be had.”
He said the body needed to be given a “metric for tolerable failure” by parliament that lays out how much consumer harm and financial wrongdoing in this area is acceptable as the government pushes for growth.
Pressure by the government to ease red tape has prompted fears of a return to ‘light touch’ financial supervision that has been blamed for contributing to the 2008 banking crisis.
But FCA chair Ashley Alder, sitting alongside Rathi, told peers that “we are not reverting to light touch.”
Last month, Alder gave the committee the same message, adding that weak regulation had “ended in tears” in the early 2000’s.
However, the government’s drive for growth has taken an early toll on regulators and agencies.
Today, former Amazon UK head Doug Gurr was appointed interim chair of the Competition and Markets Authority, “in a bid to boost growth and support the economy”.
He replaced Marcus Bokkerink who had in post for just over two years.
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