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The body added it would also “consult on removing maturing interest-only mortgage and other outdated guidance” and “work with government to remove overlapping standards” such as the Mortgage Charter.

More to follow . . .

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