Rachel Reeves has announced plans to ease the strict mortgage rules brought in after the Credit Crunch, aiming to boost the UK economy.
The Chancellor’s move is expected to help tens of thousands of first-time buyers secure loans, as the limits tied to income are relaxed. However, there are concerns this could encourage buyers to overstretch themselves and risk repossession.
Since 2014, lenders have only been allowed to offer loans worth more than 4.5 times a borrower’s annual income to 15 per cent of their mortgage book. For instance, someone earning £40,000 could usually borrow no more than £180,000.
This cap now looks set to loosen, meaning more mortgages could be offered at higher multiples – in some cases as much as six times the annual salary. The government predicts that up to 36,000 extra mortgages could be created for first-time buyers in the first year.
Speaking in Leeds, Ms Reeves described the reforms as the biggest changes to financial services in over a decade. She emphasised that these measures aim to help first-time buyers, support businesses to grow, and ultimately boost the UK economy.
Nationwide, the UK’s largest building society, has already responded by lowering the salary threshold for its Helping Hand mortgage. From tomorrow, single applicants will need to earn £30,000 instead of £35,000, and joint applicants £50,000 instead of £55,000. This could help an extra 10,000 first-time buyers every year.
The plans also include creating a permanent mortgage guarantee scheme, part of the government’s manifesto pledges. In addition, there will be a review of FCA lending rules which could see buyers’ history of paying rent on time used as proof they can afford mortgage repayments.
Despite these changes, there are warnings from regulators. FCA chief executive Nikhil Rathi has cautioned that easing rules too much could lead to rising repossessions. He explained that last year’s mortgage charter successfully kept repossessions low, which may not align with looser lending standards.
Yet, Rathi acknowledged that the reforms might allow many renters paying high rents to finally buy their own homes.
Speaking later in London, Ms Reeves is expected to highlight the immediate benefits of the changes. For instance, more first-time buyers could now access products like Nationwide’s Helping Hand mortgage.
She is set to say that financial services must play a central role in the UK’s growth plans, helping to bring investment across the economy and “put pounds in the pockets of working people.”
Roads minister Lilian Greenwood also addressed concerns about loosening rules too far. Speaking to Sky News, she said the reforms should be “done in a sustainable and sensible way” so that buyers remain confident they can keep up with repayments.
While the changes bring hope to many first-time buyers, there is still caution about ensuring these reforms don’t repeat mistakes of the past. The government believes that, handled carefully, they could help more people onto the property ladder and boost economic growth across the country.
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