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UK financial regulators have proposed allowing banks to lend more mortgages to first-time buyers with smaller deposits and lower incomes as they reply to government calls for more risk-taking to spice up the economy.
The proposals could lead on to the lifting of limits on riskier mortgage lending that were imposed on banks in response to the heavy losses of the 2008 financial crisis, when many lenders needed to be bailed out by the federal government.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told Keir Starmer this week that the watchdog was considering diluting a few of these restrictions to permit banks to extend their “responsible risk-taking” within the mortgage market, in accordance with an individual briefed on the letter.
The response was also sent to chancellor Rachel Reeves and business secretary Jonathan Reynolds.
The federal government has called on the FCA and other UK regulators to present ideas for rule changes that would increase risk-taking and investment within the economy, because the prime minister seeks to deliver on his promise to extend growth.
Starmer told investors last 12 months he would “rip up the bureaucracy that blocks investment” within the UK, and Reeves called in regulators this week to clarify how they intended to work to spice up growth.
The FCA proposals, first reported by the Times, don’t include specific detail of any planned rule-changes but suggest consulting on whether mortgage lending rules could possibly be eased to assist more people own their homes now that default rates have fallen to low levels.
UK mortgage lending is controlled by a combination of rules from the FCA and the Bank of England. These restrict banks from having greater than 15 per cent of their mortgage loan book in loans price greater than 4.5 times a borrower’s income.
The FCA could also water down affordability tests to see if borrowers would give you the chance to deal with future rate of interest rises, and permit them to make use of evidence of past rental payments to borrow more.
One other area that could possibly be examined is the quantity of capital banks have to support mortgages price no less than 90 per cent of the property value against which they’re secured.
The Treasury said Reeves would examine the FCA proposals and work closely with the financial regulator to develop them further.
It said Reeves believed that for the reason that financial crisis there had been overly onerous interventions by regulators to minimise risk on the expense of economic growth.
“The chancellor has said she just isn’t going to return to the excessive risk-taking of the financial crisis, but she is committed to rebalancing the system over time,” the Treasury added.
The concept of easing mortgage rules was welcomed by Charles Roe, director of mortgages at trade body UK Finance. “Reviewing the mortgage lending rules would help with affordability issues, not only for first time buyers but in addition those trying to move further up the housing ladder,” he said.
Some within the City of London warn that pushing regulators to prioritise growth alongside financial soundness could possibly be dangerous.
“Mitigating the build-up of risk inside individual firms across the financial markets generally without stifling growth has at all times been the role of regulators,” said Romin Dabir, a financial regulation partner at law firm Reed Smith.
“Some might say that a relentless give attention to certainly one of these objectives could lead on to the undermining of the opposite,” he added.
One other idea recommend by the FCA is to lift the £100 spending limit on contactless card transactions, which was imposed as a consequence of fears that it could open the door to fraudsters.
The FCA declined to comment.
Reeves and Reynolds wrote to 17 regulators before Christmas, telling them to set out potential pro-growth measures which could help boost the economy, with a deadline of January 16 to reply.
On Thursday, Reeves met half a dozen of those watchdogs, telling them that they needed to deliver a “mindset shift on regulation” as an alternative of “excessively specializing in risk”.
The FCA was not at that meeting but is predicted to fulfill Reeves in coming days.
