The Financial Services Authority delayed its controversial mortgage reforms yesterday and admitted its attempts to protect borrowers risked restricting lending too much.
Lord Turner, the FSA's chairman, told the watchdog's annual meeting that the Mortgage Market Review (MMR), due this summer, would not now be published until early autumn.
He said: "The more that a regulator seeks to intervene in defence of consumer interest, the more that the regulator is then making crucial trade-off choices on behalf of society, and such trade-offs are never purely technical, but judgemental and political with a small 'p'."
The FSA's review was meant to protect consumers against a repeat of bad practice by lenders during the housing boom that left borrowers saddled with mortgages they would almost certainly not be able to pay.
But lenders and housebuilders reacted with fury to the proposed clampdown. The Council of Mortgage Lenders (CML) claimed the proposals would have banned 4m existing mortgages, 95 per cent of which were being repaid.
Lord Turner said yesterday that deciding whether to protect 15 per cent of borrowers who may default while stopping the other 85 per cent from taking on a tough but affordable commitment required more work.
"That is a question which deserves wide-ranging debate, as best possible to forge a social consensus.
"It is not a question which a regulator can resolve on the basis of technical analysis alone.
"The analysis required to enable an informed debate on this issue needs to be of the highest quality and clearly presented," he added.
The CML said it was not surprised that the FSA had been forced to delay the review.
Michael Coogan, director general of the CML, said: "We are pleased that the FSA wants to take time to get it right. The regulator has already indicated that it will be cautious about implementing change while the mortgage market recovers.
"The current muted state of the market presents no regulatory threat, so there is no need to rush."
Lord Turner also promised that the FSA's report into Royal Bank of Scotland's near-collapse would pull no punches on the watchdog's "woefully deficient" regulation of the bank.
Like the MMR, the report, which was originally due in March, will now appear in the autumn.
Lord Turner said the report would cover the FSA's own supervision of RBS as well as the actions taken by the bank's former chief executive, Sir Fred Goodwin, and his team. It will also look at the watchdog's decision not to punish Sir Fred and other bankers.
But he admitted that if the FSA had regulated RBS properly the bank would not have failed, even with the disastrous acquisition of ABN Amro, reckless commercial property lending and packaging up US mortgages.
"We were allowing banks to run with totally inadequate levels of capital," he said.
He said the FSA's report on its mistakes over Northern Rock was "the most rigorously self-critical" review he had seen by any regulator.
He promised a similarly frank account of the RBS debacle and called on the Government to make it easier for the watchdog to publish public reports while legal action was taking place.Reuse content