It is considering reviewing the rules and tests around how much applicants can borrow in relation to their income. Currently lenders are limited in the number of loans they can offer to applicants who need to borrow 4.5 times their salary.
And it may also look at relaxing stress testing procedures – which assess how a borrower might cope financially with their mortgage repayments were interest rates to rise.
These changes are part of a wider set of recommendations the Chancellor Rachel Reeves has made to the city regulator, the Financial Conduct Authority (FCA), about how regulation can support growth.
In response the FCA said in its bid to reduce ‘regulatory burden’ it would begin simplifying responsible lending and advice rules for mortgages to support homeownership. It also said it would ‘consult on removing maturing interest-only mortgage and other outdated guidance’.
So far, mortgage lenders have welcomed the proposals. Mark Hollands, head of sales and distribution at Bluestone Mortgages, said: “We welcome the Chancellor’s interest in tackling the challenge of affordability for first-time buyers.
“For too long, lending rules have been too restrictive, making getting onto and up the property ladder out of reach for many, if they can afford the monthly repayments.”
Bluestone’s research showed 37% of first-time buyers named affordability as their main barrier to homeownership and a third were struggling to raise a large enough deposit.
Hollands said: “As such, we hope to see measures from the government not only focus on easing affordability to open up the market to thousands more participants, but also increasing support for those with small deposits.”
Arjan Verbeek, CEO of Perenna said: “We may finally be seeing regulators and government alike wake up to the fact that too much regulation can also damage consumer outcomes, rather than support them – and in doing so, undermine growth. The mortgage market is a case in point.”
He added: “Lenders can usually only provide above 4.5 times loan to income for c.15% of their loan books, meaning the level of high LTV and LTI lending required to tackle the housing affordability crisis simply cannot exist. Without change, many more people will stay renting rather than become homeowners.
“Amending or removing the LTI to reflect the products in the market like long-term fixes minimises the risks the regulators are concerned with and would be a gigantic leap forward for the hundreds of thousands of frustrated first-time buyers shut out of the market.”
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