The consultation paper said the different risk profile of business consumers raising a mortgage on their home compared to other consumers has led the FSA to consider whether it may be appropriate to carve out business loans from its proposed new regime entirely.
It says there is an argument that if a business borrower and lender want to take an informed risk and the business borrower is happy to use his home as collateral for a business venture, why should he be inhibited in any way from doing so?
It said: “It is important not to constrain the ability of consumers to take consciously chosen business risks. But what of those less able to protect their own interests, such as sole traders borrowing against their home as a last resort to keep their business afloat?
“They more obviously need regulatory protection.”
It added that it was not clear whether the FSA can and, if so, where it would draw a line between those small business borrowers who can take the risk and should be allowed to do so and those who cannot.
It said: “There is also an issue about how we would prevent this from being exploited as a means to avoid our new proposals.
“Again we would welcome market feedback on this and whether we should make a more fundamental change to our approach to business borrowers.
“Given the need to protect some small business borrowers, we believe that it would be appropriate to allow the consumer to choose whether to forego the protections of mortgage rules.
“We therefore propose to adopt an elective approach to this, similar to that taken in the investment market.
“However, it may be appropriate to maintain some mortgage rules, for example the arrears rules rather than forego all protections.
“We would welcome feedback on this.”
The consultation paper asks:
“What are your views on our approach to business lending? Should we adopt a similar approach to that proposed for High Net Worth consumers, recognising that for some consumers, regulation is not needed to protect them from the decisions they make?
“How would we draw a line between those business borrowers able to take the risk and those who are not?
“How would we prevent this proposal from being exploited as a means of circumventing our affordability proposals?
“Would it be appropriate for all mortgage rules to be foregone or should some, for example the arrears rules, be retained?”
The consultation period closes on 30 March 2012.
