While many will welcome the more relaxed lending criteria in Rachel Reeves’ Leeds Reforms, it risks creating a rapid house price boom which will invariably be followed by a bust, according to David Alexander (pictured) boss of DJ Alexander.

He is calling for the rule changes to be combined with more housebuilding, greater encouragement for the private rented sector (PRS), and assurances that this will not lead to an overheating of the property market.

The Leeds Reforms, while mostly focused on the financial markets, also aim to kick-start the housing market.

This includes measures such as more relaxed loan-to-income (LTI) caps, simplified mortgage lending rules to make it easier for existing borrowers to remortgage, and a permanent government-backed Mortgage Guarantee Scheme to secure the availability of high loan-to-value mortgage products in times of economic uncertainty.

The risk is that this is potentially repeating the fairly lax lending that occurred in the run-up to the 2008 housing crash.”

Alexander says: “The risk is that this is potentially repeating the fairly lax lending that occurred in the run-up to the 2008 housing crash where excessive income multiples were approved, financial checks were less robust, and individuals were encouraged to borrow too much resulting in a price crash which, for many parts of the country, took years to recover from.”

Greater access

He adds: “Without increased housing supply, the danger will be that while more people will be able to access greater funding, this will simply be used to pay inflated prices for a limited number of properties.

“This will result in prices rising rapidly, and a cycle of higher borrowing, greater payments, but no real resolution of the underlying causes of the current affordability issues. The worst outcome for these policies is that they could actually make affordability worse rather than better.

“The permanent mortgage guarantee scheme does have the potential to be positive. Supporting high loan-to-value lending during economic downturns may provide greater stability at a time when growth is absent. But success will depend on how this is implemented and whether it is appropriately monitored.”

“It took over nine years for the housing market to recover from the boom, so we must approach any relaxation of lending with caution. It can be very easy to turn the lending taps on, but much harder to turn them off.”