UK regulators support looser mortgage rules to help boost growth

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UK financial regulators have proposed allowing banks for the first time to offer more loans to buyers with smaller deposits and lower incomes as they respond to government calls to boost the economy.

The proposals may lead to the lifting of restrictions on dangerous situations. mortgage In the year Many lenders had to be bailed out by the government in response to the severe financial crisis of 2008.

Nikhil Rathi, chief executive of the Financial Conduct Authority, told Keir Starmer this week that the watchdog is considering easing some of these restrictions to allow banks to increase their “responsible risk” in the credit market. Letter.

The response was sent to Chancellor Rachel Reeves and Business Secretary Jonathan Reynolds.

As the Prime Minister seeks to deliver on his promise to boost growth, the government has asked the FCA and other UK regulators to submit proposals for regulatory changes that will boost risk-taking and investment in the economy.

Starmer told investors last year that he would “remove the bureaucracy that is preventing investment” in the UK, and Reeves called on regulators this week to discuss how they plan to boost growth.

The FCA’s proposals, first reported by The Times, do not list any proposed legal changes, but suggest consulting on whether mortgage lending rules could be eased to help more people keep their homes now that default rates have fallen to record lows.

UK mortgage lending is regulated by a mix of rules from the FCA and the Bank of England. These banks limit their mortgage loan book to no more than 15 percent with loans greater than 4.5 times the borrower’s income.

The FCA can also introduce proportionality tests to see if borrowers can withstand future interest rate increases and use evidence of past rent payments to borrow more.

Another consideration is the amount of capital banks need to finance loans worth at least 90 percent of the value of their assets.

The Treasury said Reeves would examine the FCA’s proposals and work closely with the financial regulator.

Reeves said he believes regulators have been overly aggressive in reducing risks to economic growth since the financial crisis.

The Treasury added: “The chancellor has said she will not back down from the excessive risk-taking of the financial crisis, but is committed to fixing the system over time.”

The idea of ​​easing mortgage rules was welcomed by Charles Roe, director of mortgages at UK Finance’s trade body. “Reviewing the mortgage lending rules will help with affordability issues, not only for first-time buyers, but also for those looking to move up the housing ladder,” he said.

Richard Donnell, managing director of property portal Zopla, said the “biggest barrier” that prevents many people from getting a loan is the stress test on affordability, which requires banks to check whether borrowers can afford to increase loan costs.

“That comes at the cost of pushing more people out of the market,” Donnell said, adding that before interest rates rose recently, lenders were often strained to find a 6 percent rate that borrowers could afford. Up to 8-9 percent.

But Sir Vince Cable, a former Liberal Democrat business secretary in the 2010-2015 coalition government, said relaxing mortgage standards could be too risky.

“It looks very similar to the trends of two decades ago that ended with the crazy 125 percent rate on Northern Rock mortgages and autos, which didn’t end well,” he said. Although there is no systemic risk, this increases demand without supply – we know where this leads.

Some City of London figures have also expressed concern that regulators are being pushed to prioritize growth alongside financial soundness.

“It’s always been the role of regulators to reduce risk in individual companies in the financial markets as a whole,” said Romine Dabir, partner in financial regulation at Reed Smith law firm. “Some might say that a constant focus on one of these goals can lead to the failure of the other.”

Another proposal by the FCA is to lift the £100 spending limit on contactless card transactions, amid fears it could open the door to fraudsters.

The FCA declined to comment.

StarmerReeves and Reynolds wrote to 17 regulators before Christmas, telling them to put in place pro-growth measures that could boost the economy, with a Jan. 16 deadline to respond.

On Thursday, Reeves met with a half-dozen of those guards and told them that instead of “over-focusing on risk,” they need to “change the mindset of the good.”

FCA was not at that meeting but is expected to meet with Reeves in the coming days.