January 17, 2025 4:28 pm

Insert Lead Generation
Nikka Sulton

Strict rules on mortgage lending could soon be eased, allowing more people to access home loans, as UK regulators respond to calls for measures to stimulate economic growth. The potential changes come at a time when many are finding it increasingly difficult to secure mortgages due to tighter lending criteria.

In a newly published letter, the UK’s financial regulator, the Financial Conduct Authority (FCA), announced it would investigate ways to simplify the lending rules that were introduced following the 2008 financial crisis. These rules were designed to protect borrowers and ensure financial stability, but many believe they have also made it harder for people, particularly first-time buyers, to get on the property ladder.

The FCA is expected to review the balance between safeguarding borrowers and ensuring greater access to home loans. This review would likely focus on whether the current regulations are too restrictive and whether there is room to relax them without compromising consumer protection. Such a move would be welcomed by lenders who have faced challenges in meeting the demand for mortgages while adhering to the strict rules.

In addition to mortgage lending, the FCA will also consider scrapping the £100 cap on purchases made via contactless cards. Currently, this cap is in place for security reasons, but it limits the amount that can be spent in a single transaction. The review will explore whether this limit should be lifted to bring contactless card payments more in line with digital wallets, where individual providers can set their own spending limits. Removing or raising this cap could offer more flexibility to consumers, particularly in a society increasingly reliant on digital payments.

These potential regulatory changes reflect the growing concern that the economy could benefit from more flexible lending policies and a modernisation of payment systems. If implemented, the changes could have significant impacts on the housing market, the broader economy, and the way consumers manage their finances.

In December, Prime Minister Sir Keir Starmer, the Chancellor, and the Business Secretary sent a letter to the UK’s leading financial regulators, urging them to propose reforms that could help stimulate economic growth. They set a clear deadline of mid-January for regulators to come up with their suggestions. This letter signalled a push for a fresh approach to some of the country’s economic policies, particularly in relation to lending and payment systems.

In response to this request, the Financial Conduct Authority (FCA) published a detailed letter on Friday, outlining its current programmes designed to support growth and the broader economy. The FCA’s response highlighted several measures already in progress but also suggested new ideas that could be implemented in the near future. These suggestions were focused on the areas of mortgages and contactless payments, both of which play a significant role in the UK’s financial system.

Among the proposals put forward by the FCA, two key areas stood out for further scrutiny: the rules surrounding mortgage lending and the limits placed on contactless payments. These areas have long been under regulation, but the FCA’s move to examine them more closely indicates a possible shift towards loosening certain restrictions in order to make borrowing more accessible to the public.

Mortgage lending has been tightly regulated since the 2008 financial crisis, which exposed the risks of reckless lending and left major financial institutions vulnerable. Lenders are currently required to ensure that potential borrowers can afford their mortgages, even in the event of higher interest rates. This is part of a broader effort to prevent the types of defaults and repossessions that occurred during the crisis.

The FCA has pointed out that despite these stringent rules, the number of people falling behind on mortgage repayments or having their homes repossessed remains relatively low. This has raised questions about whether the current regulations are overly strict and whether they are unintentionally preventing people from accessing home loans. The authority is now considering whether these rules could be relaxed in a way that would still protect consumers while allowing for more borrowers to enter the housing market.

In the letter written by Nikhil Rathi, the chief executive of the FCA, the organisation expressed its intent to begin simplifying the responsible lending and advice rules for mortgages. This initiative aims to create a more flexible lending environment, one that can better support homeownership in the UK. The idea is to open a discussion about how to strike the right balance between granting access to lending and maintaining a reasonable level of risk and defaults.

The FCA has acknowledged that this is a delicate issue, as its primary responsibility is to protect consumers, while its secondary goal is to promote growth. As the organisation works to simplify the mortgage rules, it will need to carefully consider the long-term impacts on both consumers and the economy as a whole. Any changes to the mortgage lending framework must ensure that the financial stability of the housing market is not compromised.

The FCA will also explore potential reforms to the £100 limit on contactless card payments, which it suggests could be more in line with digital wallets where payment providers set their own limits. This would allow consumers to make larger transactions using contactless cards, a move that could benefit both consumers and businesses alike by offering a more convenient and flexible payment option.

Overall, the FCA’s review of mortgage rules and contactless payment limits represents a significant moment for the UK’s financial regulators. As the government looks for ways to stimulate economic growth, these potential changes could have a considerable impact on lending practices, the housing market, and consumer behaviour. As the discussions continue, all eyes will be on how these reforms are shaped and whether they can strike a balance between fostering growth and ensuring financial stability.

Lenders have largely welcomed the Financial Conduct Authority’s (FCA) move to review mortgage lending rules, but there are concerns from analysts and borrowers about whether the lessons from the 2008 financial crisis have truly been absorbed. The proposed changes aim to improve affordability, but the potential risks have led to some caution regarding the extent of these reforms.

Charles Roe, director of mortgages at UK Finance, which represents lenders, explained that reviewing the current mortgage lending rules could help alleviate affordability issues. He pointed out that this would not only benefit first-time buyers but also those looking to climb further up the housing ladder. Roe emphasised that banks will always lend responsibly, but the current rules are restricting the number of people able to secure a mortgage, and therefore, relaxing these regulations could make a positive difference.

While lenders may be in favour of loosening restrictions, some analysts have raised concerns about the long-term consequences. Richard Donnell, executive director of research at Zoopla, noted that while reviewing the rules could be beneficial in some areas, it also poses significant risks for consumers and the government. He cautioned that there is a delicate balance to be struck, and finding the right level of regulation is far from straightforward.

A key issue that complicates this process is the significant disparity in housing affordability between different regions of the UK. The divide between the North and South in terms of property prices and incomes makes it difficult to create one-size-fits-all solutions. Analysts are concerned that easing the mortgage rules could disproportionately benefit certain parts of the country, while exacerbating affordability issues elsewhere.

Overall, while the review of mortgage lending rules has the potential to improve access to home loans, it also raises important questions about financial stability and fairness. The FCA and other regulators will need to carefully assess the risks and rewards of any proposed changes to ensure that they do not unintentionally undermine the long-term health of the housing market.

 

Contactless limits

The Financial Conduct Authority (FCA) has also proposed a second new idea aimed at simplifying the spending process: scrapping the £100 limit on contactless card payments. This change would allow consumers to spend more easily and quickly using their cards.

Contactless payments were first introduced in 2007 with a transaction limit set at £10, mainly for small purchases like snacks, newspapers, and occasional groceries. Over the years, this limit has been gradually increased. In 2012, it rose to £20, and by 2015, the limit was raised again to £30. Most recently, in October 2021, the limit was increased further to £100.

While these changes are designed to encourage spending, there are concerns that they could potentially be inflationary. The FCA’s proposals would need to undergo thorough reviews and consultations before they could be implemented, meaning that even if they are approved, these changes are unlikely to happen immediately.

In addition to the changes to contactless payments, the FCA’s letter also outlines potential digital advances that could help improve efficiency in the financial services sector. For instance, the proposal suggests requiring firms to accept electronic verification of death in order to speed up bereavement claims in insurance. This would streamline a process that can often be lengthy and stressful for those already dealing with personal loss.

 

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