Homebuyers could soon find it easier to get on the property ladder as the Government considers proposals from the Financial Conduct Authority (FCA) to simplify mortgage lending rules.
The City regulator has outlined plans to boost economic growth and home ownership by reviewing current lending restrictions, which were tightened after the 2008 financial crisis.
The move comes as inflation dropped to 2.5 per cent in December, raising hopes of potential interest rate cuts that could make mortgages more affordable.
Nikhil Rathi, FCA’s chief executive has written to the Chancellor Rachel Reeves, pledging to “begin simplifying responsible lending and advice rules for mortgages, supporting home ownership.”
The FCA’s proposals include reviewing how much first-time buyers can borrow and potentially issuing more loans to customers with smaller deposits.
The regulator said it would work with the Government to remove “overlapping standards” such as the Mortgage Charter, which many lenders signed up to during the higher rate environment.
The FCA wants to show it supports Labour’s goal of boosting economic growth, but still ensures that lending practices remain responsible
GETTY/PA
The FCA wants to show it supports Labour’s goal of boosting economic growth, but still ensures that lending practices remain responsible.
Rathi explained they would start a discussion about finding the right balance between making loans accessible and preventing too many defaults (when borrowers can’t pay back their loans).
Right now, banks can only lend 15 per cent of their total mortgage loans to people who are borrowing more than 4.5 times their yearly salary.
The Bank of England previously scrapped rules requiring lenders to check if homeowners could afford mortgage payments at higher interest rates in 2022.
Matt Smith, mortgage expert at Rightmove, welcomed the potential changes and said: “It is really encouraging that the market regulators are now considering what a review of mortgage affordability could look like. Regulatory change is what we’ve been calling for, as that is what is needed to truly impact home mover affordability, particularly for first-time buyers.”
Some property experts warn the changes could lead to higher house prices and risky borrowing levels.
Jonathan Moser, chief executive of MoLiving said: “There is a risk that enabling people to borrow more will once again send house prices skyrocketing.”
This change in regulations comes at a time when the economy is showing signs of improvement. For example, the Consumer Prices Index (which measures inflation) dropped slightly from 2.6 per cent in November to 2.5 per cent in December, according to official data.
The latest inflation figures have boosted hopes for interest rate cuts at the Bank of England’s next meeting on February 6.
Julian Jessop, Economics Fellow at the Institute of Economics Affairs, called the inflation drop “a rare piece of good news on the UK economy.”
He said: “The Bank will especially welcome the fall in services inflation, because this is where any upside risks from a tight labour market might show up.”
Financial markets largely expect the Bank to lower rates by 0.25 percentage points to 4.5 per cent at the February meeting.
However, some experts warn of complications ahead, with Daniel Casali of Evelyn Partners noting that “services CPI inflation remains elevated at 4.4 per cent year-over-year.”
However, Rocio Concha, Which? Director of Policy and Advocacy, urged caution: “The Financial Conduct Authority and government are right to explore ways to boost economic growth, and Which? would never stand in the way of cutting unnecessary red tape. However, viewing consumer protections as a barrier to economic growth is misguided.”
She stressed that well-designed regulations remain essential for creating dynamic markets that reward investment and innovation.
