Media reports over the weekend suggest that UK financial regulators have proposed allowing banks to lend more mortgages to first-time buyers with smaller deposits and lower incomes.
This is a bid to kick-start growth in the economy, in response to a government call for more risk-taking by regulators to boost spending.
This could even lead to the relaxation of limits on riskier mortgage lending imposed on banks in response to the 2008 financial crisis, when many lenders had to be bailed out by the taxpayer.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told Prime Minister Sir Kier Starmer in a letter at the end of last week that the FCA was considering radical moves – he repeated the pledge at a round-table with Chancellor Rachel Reeves on Friday.
Rathi’s letter says he wants to “remove unnecessary regulation” with planned activity in 2025 including:
- Streamline our handbook following industry input on rules which could be removed or simplified; and improve accessibility and efficiency with a machine-readable version;
- With the Bank of England/PRA, continue reducing reporting burdens for firms;
- Remove the need for a Consumer Duty Board Champion now the Duty is in effect:
- Ensure future consultations on consumer protection ask if the Consumer Duty is sufficient
rather than new rules; - 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defaults; - Consult on removing maturing interest-only mortgage and other outdated guidance;
- Working with Government to remove overlapping standards, e.g. the Mortgage Charter.
Rathi suggests the FCA could go further and, with government support, reduce costs of anti-money laundering measures, relaxing know your customer requirements on small transactions. The Treasury also commenced modernisation of the Consumer Credit Act in 2022.
The government has called on the FCA and other UK regulators to present ideas for rule changes that could increase risk-taking and investment in the economy, as Starmer seeks to increase growth.
UK mortgage lending is currently heavily controlled by rules from the FCA and the Bank of England.
These restrict banks from having more than 15 per cent of their mortgage loan book in loans worth more than 4.5 times a borrower’s income.
Rightmove’s mortgage expert Matt Smith says: “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. We’ve seen some innovative products and schemes announced by lenders to try and do their bit to support home-buyers, but they need support from both the government and regulators to really drive more options for people.”
