The Financial Conduct Authority (FCA) is investigating alternative ways to carry out ‘stress testing’ on mortgage applications so that it will be easier for people to take out a mortgage.
In the years following the 2008 financial crisis, strict lending rules were put into place to avoid people falling into difficulties with their repayments. But these have also excluded many from homeownership and made it harder for people to escape from the expensive rental market.
Under these regulations, when a mortgage lender assesses a potential borrower’s income they look at how they might afford the mortgage were interest rates to increase in future.
But the FCA has said that as interest rates are falling, the current approach to stress testing may be ‘unduly restricting access to otherwise affordable mortgages’.
It has asked lenders to be aware of the flexibility its rules provide to ensure customers with good credit can access the affordable mortgage they need.
It will also be looking into alternative approaches to stress testing and will launch a consultation to make it easier for borrowers to remortgage with a new lender and reduce their mortgage term.
Nikhil Rathi, chief executive of the FCA, said: “We are taking swift action to support people in getting the keys to their own home.
“Firms have the flexibility to help more people become homeowners and we want them to use it.
“There is more to be done, and we will be delivering further proposals quickly to support home ownership and the wider UK economy.”
Rachel Reeves, Chancellor of the Exchequer, said: “This is welcome action by the regulator to kickstart economic growth and help working families get on the housing ladder.
“The world is changing. That is why we must go further and faster in delivering on our Plan for Change, so we can get more money into people’s pockets.”
But mortgage industry professionals have warned there needs to be a balance to ensure the plans to don’t backfire.
Emma Jones, managing director at Whenthebanksaysno.co.uk speaking via the Newspage agency, said: “Affordability is an ongoing issue for many prospective buyers so a review of the stress testing rules is no bad thing.
“However, we have to be careful that we do not revert to the Wild West that was the mortgage world in the years leading up to the Global Financial Crisis. More flexibility is welcome but it should not come at the cost of putting borrowers at risk.”
