Mortgage rules in the UK might be eased to help first-time buyers, according to a report from The Times.
Financial regulators were said to be considering changes to allow lenders more flexibility for “responsible risk-taking.”
This could make it easier for first-time buyers to get on the property ladder.
Chancellor Rachel Reeves reportedly encouraged a “pro-growth agenda” in a meeting with several agencies, including the Competition and Markets Authority (CMA).
She argued that regulators needed a “mindset shift on regulation” to boost economic growth instead of focusing too much on risk.
Reeves said: “There’s no substitute for growth. It’s the only way to create more jobs and put more money in people’s pockets.”
The Times found that among the proposals being discussed are reforms to the mortgage market to make homes more affordable.
Current rules around lending are seen as too restrictive, affecting first-time buyers even if they can afford monthly mortgage payments.
The suggested changes may let banks issue more loans to buyers with smaller deposits.
Regulators were reportedly considering altering financial stress-testing rules, potentially revising the cap that limits lending to 15% of a lender’s total mortgage book for properties costing more than 4.5-times the buyer’s annual salary.
Affordability rules that account for unexpected interest rate rises could also be scaled back.
Evidence of previous rental payments may be used in affordability tests rather than focusing solely on income.
Reeves and Prime Minister Sir Keir Starmer asked 17 UK regulators to propose reforms to support economic growth, according to The Times.
Reeves said: “Every regulator, no matter what sector, has a part to play by tearing down the regulatory barriers that hold back growth.
“I want to see this mission woven into the very fabric of our regulators through a cultural shift from excessively focusing on risk to helping drive growth.”
Reaction:
Arjan Verbeek, CEO of Perenna:
“If the reports are right, we may finally be seeing regulators and government alike wake up to the fact that too much regulation can also damage consumer outcomes, rather than support them – and in doing so, undermine growth. The mortgage market is a case in point.
“The Bank of England should be commended for assessing what changes it could make based on where the market is today.
“If we want to build a nation of homeowners, it is critical to regularly review and revise regulations that whilst protect the system from risk, stop the market from serving credit-worthy first time buyers.
“The LTI flow cap sticks out like a sore thumb. It acts as a handbrake on today’s mortgage market, stopping credit from reaching those who will benefit from it most.
“Lenders can usually only provide above 4.5x loan to income for c.15% of their loan books, meaning the level of high LTV and LTI lending required to tackle the housing affordability crisis simply cannot exist.
“Without change, many more people will stay renting rather than become homeowners.
“Amending or removing the LTI to reflect the products in the market like long-term fixes minimises the risks the regulators are concerned with and would be a gigantic leap forward for the hundreds of thousands of frustrated first-time buyers shut out of the market.”
Mark Hollands, head of sales and distribution at Bluestone Mortgages:
“We welcome the Chancellor’s interest in tackling the challenge of affordability for first-time buyers.
“For too long, lending rules have been too restrictive, making getting onto and up the property ladder out of reach for many, if they can afford the monthly repayments.
“Our own research found that nearly two fifths (37%) of first-time buyers said affordability is their main barrier to homeownership, while a third (34%) are struggling to raise a large enough deposit.
“As such, we hope to see measures from the government not only focus on easing affordability to open up the market to thousands more participants, but also increasing support for those with small deposits.
“Looking ahead, we would like to see greater collaboration between the government and the mortgage industry to support the root causes of the housing crisis.
“This includes easing the affordability pressures that prospective buyers face as well as providing innovative solutions that help buyers get onto the property ladder.”
