Financial watchdog the FCA says it will soon allow banks and building societies greater flexibility to allow ‘responsible risk-taking’, especially for mortgage lending and in particular first time buyers.

The comments, which are within the FCA’s letter to Kier Starmer, are part of the Government’s efforts to revive the UK’s flat-lining economy and Rachel Reeves’ calls to regulators to target growth rather than focusing on safety first.

The changes under consideration include easing financial stress-testing rules and taking into account evidence of previous rental payments.

In addition, the 15% cap on mortgage lending to fisrst time buyer of 4.5 times their annual salary could be raised along with the amount of capital lenders need to keep in reserve for 90% LTV mortgages.

The current rules are restricting the number of people who can get a mortgage.”

The idea has been given a warm welcome by lenders and Charles Roe, director of mortgages at UK Finance told The Times: “Reviewing the mortgage lending rules would help with affordability issues, not just for first-time buyers but also those looking to move further up the housing ladder.

“Banks will always lend responsibly but the current rules are restricting the number of people who can get a mortgage and so could be relaxed.”

Rightmove’s mortgage expert Matt Smith adds: “It is really encouraging that the market regulators are now considering what a review of mortgage affordability could look like.

“Regulatory change is what we’ve been calling for, as that is what is needed to truly impact home-mover affordability, particularly for first-time buyers.

“We’ve seen some innovative products and schemes announced by lenders to try and do their bit to support home-buyers, but they need support from both the government and regulators to really drive more options for people.”

Note of caution

NAEA Propertymark President, Toby Leek, while also welcoming the proposal, sounds a note of caution, telling The Neg: “While ambition in policymaking is commendable, it is vital to carefully consider the details and anticipate potential unintended consequences. Many of the stress tests currently in place were introduced in response to the 2008 financial crisis, and their purpose remains the same, to safeguard financial stability.

“Easier access to funding could be a positive development, particularly for those seeking to enter the housing market. However, it’s important to recognise that many first-time buyers continue to face significant challenges, such as saving for a deposit amid high rental costs. A balanced approach is needed to address these barriers without compromising the resilience of the financial system”.