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Rules restricting UK mortgage loans will be eased under a plan announced by financial regulators on Friday, making it easier for people to buy their homes.
Financial Conduct Authorities said they are approaching calling for evidence on how to loosen rules requiring banks to force borrowers to cope with higher interest rates.
The regulator also outlined plans to launch a “public debate” in the mortgage market in June and talks in May to present “early ideas” on how to facilitate mortgage term, receive advice and reduce it.
The proposal cuts down rules designed to prevent future financial crisis and is part of the FCA’s response to Prime Minister Kiel’s call to focus on growth measures.
The FCA’s mortgage proposal was welcomed by Prime Minister Rachel Reeves. Rachel Reeves said it will “start economic growth and help working families ride the housing ladder.”
Watchdog CEO Nikhil Latty said, “We are taking swift action to help people get keys to our homes,” he added that regulators wanted lenders to “help more people become homeowners” with existing stress testing rules.
However, some officials worry that by abandoning many of the rules introduced after the 2008 financial crisis to prevent excessive risk-taking in the mortgage market, taxpayers could be at risk of bailing out major banks again.
Bank of England Gov. Andrew Bailey told the MPS in January that reforms to mortgage rules should be considered to help avoid “the kind of real issues we’ve seen in the past” in the next cyclical slump or economic shock.
Rathi also said that mortgage lending easing could increase defaults and home seizures, and asked politicians to define acceptable levels of harm to consumers as he warned that restrictions would be “wrong” if they were to be eased.
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Mortgage lending in the UK is managed by a mix of FCA and BOE rules, most of which were introduced after the financial crisis.
The FCA requires banks to conduct affordable prices testing to see if borrowers can maintain their repayments if interest rates rise.
Watchdog said it uses higher interest rates in stress tests than the interest rates that many lenders actually offered. This was particularly down from its recent peak, which “may be unnecessary limiting access to affordable mortgages in other ways.”
The BOE’s Monetary Policy Committee limits banks beyond a certain size, lending mortgages of less than 15% at less than 15%, at a ratio of more than 4.5 times the household’s income. It was applied to fewer banks as the lending threshold for this limit was changed in November.
The FCA said the planned public debate on mortgages in June took into consideration “risk appetite and responsible risk taking, alternative affordable testing and product innovation, lending and consumer information needs for later life expectancy.”
The regulator added that “we will also consult to eliminate outdated regulatory guidance, such as mature interest-only mortgage guidance,” adding that this overlaps with the new consumer obligation rules required by financial institutions to treat customers fairly.
In a letter to City Minister Emma Reynolds, Latty announced on Friday that “consumer protection and responsible lending will remain “core principles” in rewriting mortgage rules, but he added that “action and solid culture are far stronger now.”
