First-time buyers may find it easier to get on the property ladder under proposals to ease mortgage rules, while financial regulators explore ways to enable “responsible risk-taking” among borrowers.
It is understood that the Financial Conduct Authority and other regulators are considering amendments to current lending guidelines, which could allow banks and building societies greater flexibility in making loans with smaller deposits. Current regulations limit the number of mortgages mortgage lenders can originate to more than 4.5 times a borrower’s annual salary, and impose strict affordability tests to ensure borrowers can handle potential interest rate increases.
Banks are also pressuring the Bank of England to reduce the amount of capital it must hold in reserve for higher loan-to-value mortgages, which would open up the market further to first-time buyers. According to industry experts, many potential homeowners are disadvantaged by strict lending standards, even if they can comfortably afford the monthly payments.
Meanwhile, payment regulators may ditch the current £100 limit for contactless transactions, allowing card providers to set their own caps for quick payments. This will provide greater convenience for consumers making larger purchases, reflecting the growing demand for more flexible payment methods.
The moves come in response to Chancellor Rachel Reeves’ call for regulators to demonstrate a “pro-growth agenda” following her meeting with the Competition and Markets Authority, the Environment Agency and others at the Treasury on Thursday. Reeves stressed the need for a “shift in mindset around regulation” to stimulate the economy “rather than an over-focus on risk.”
Although Reeves welcomed some of the proposals from regulators, she urged increased “ambition and urgency” to promote stronger economic growth. This sentiment reflects a promise by Reeves and Labor leader Sir Keir Starmer to make the UK the fastest growing economy in the G7, a pledge that is now under additional pressure amid higher-than-expected borrowing costs.
In a letter to the UK’s 17 regulatory bodies, Reeves and Starmer called on each body to propose five reforms to boost economic expansion over the next year. Reeves indicated that she was prepared to enact legal changes if necessary, and highlighted Starmer’s commitment to “tear up regulation that inhibits investment” so that the regulatory framework is in line with contemporary economic needs.
Meanwhile, the potential scrapping of the £100 contactless payment limit is seen as another significant regulatory shift. Critics say the outdated caps hamper consumer spending, while removing them could increase transaction volume and better reflect modern purchasing habits.
The news has been welcomed by many in the financial services sector, noting that mortgage arrears and repossession remain at historically low levels, suggesting there is scope for a controlled easing of lending rules. Charles Rowe, mortgage director at UK Finance, said current regulations were restricting homeownership opportunities. Andrew Montlake, chief executive of real estate broker Korico, described the reforms as a “reasonable” development that could attract thousands more buyers.
This pro-growth trend bears striking similarities to the ideas first put forward by Liz Truss in her ill-fated premiership. Despite notable policy differences, Reeves and Starmer share Truss’s diagnosis that burdensome regulations are holding the UK economy back.
Reeves’ meeting with regulators underscored the tension inherent in balancing pro-growth measures with protecting consumer and market stability. Regulators, whose mission has traditionally been to reduce risk, must now adapt to a changing political landscape that requires a more flexible stance on regulation. If Labor’s leadership is serious about a bold deregulation drive, it will likely have to shake up legal powers and prepare to do battle with entrenched interests.
For first-time buyers and businesses alike, the results of these deliberations could be transformative, potentially leading to easier access to financing while accelerating an economy in need of new momentum.
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