Regulation  

FCA: It is not our place to remove all risk from market

The Financial Conduct Authority has re-affirmed that it is not its role to “eliminate all risk from financial decision making” as it defended interest-only mortgages as having “a place within the future mortgage market”, in a letter to Treasury Select Committee chairman Andrew Tyrie MP.

In response to Mr Tyrie asking whether the concept of ‘buyer beware’ comes into play with interest-only mortgages, Mr Wheatley says that the FCA must make “delicate judgements” between consumer and firm responsibility.

He highlighted the “robust underwriting process” that lenders would be expected to undertake to ensure individuals have a repayment strategy in place, but insisted consumers share responsibility.

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He added that customers benefit from the availability of a wide range of mortgage products and the FCA should not, and does not, attempt to eliminate all risk from financial decision making.

Mr Wheatley said: “We believe that interest-only mortgages have a place within the future mortgage market, but that customers should have a clearly understood and credible repayment plan in place to repay their loans at the end of the term.

“This is why our new rules, which come into force in April 2014, will require lenders to undertake a robust underwriting assessment to confirm that interest-only customers have such a strategy in place.”

Mr Wheatley was responding to questions raised about the FCA’s thematic review into interest-only, pointing to other reviews that it will be launching or that are ongoing, including into mortgage arrears and forebearance management.

Mr Wheatley said that thematic reviews are “indicative” of the FCA’s approach to regulation, where it looks to intervene at an early stage to prevent consumer detriment from crystallising.