First-time buyers could soon find it easier to step onto the property ladder under proposals to relax mortgage rules, as financial regulators explore ways to enable “responsible risk-taking” among borrowers.
The Financial Conduct Authority and other watchdogs are understood to be considering adjustments to existing lending guidelines, potentially allowing banks and building societies greater flexibility in offering loans with smaller deposits. Current regulations cap how many mortgages lenders can issue above 4.5 times a borrower’s annual salary, and enforce strict affordability tests to ensure borrowers can cope with possible interest rate rises.
Banks are also pressing the Bank of England to reduce the amount of capital they must hold in reserve for high loan-to-value mortgages, which would open the market further to first-time buyers. According to industry experts, many prospective homeowners are locked out by rigid lending criteria, even if they can comfortably afford monthly repayments.
At the same time, payment regulators may ditch the existing £100 limit on contactless transactions, allowing card providers to set their own ceilings for tap-and-go payments. This would bring greater ease for consumers making larger purchases, reflecting increasing demand for more flexible payment methods.
The moves come in response to the chancellor Rachel Reeves’s call for regulators to show a “pro-growth agenda” following her meeting with the Competition and Markets Authority, the Environment Agency, and others at the Treasury on Thursday. Reeves emphasised the need for a “mindset shift on regulation” to stimulate the economy “instead of excessively focusing on risk”.
Although Reeves welcomed some of the proposals from the regulators, she urged greater “ambition and urgency” to foster stronger economic growth. This sentiment echoes a promise from Reeves and Labour leader Sir Keir Starmer to make the UK the fastest-growing economy in the G7, a pledge now under added pressure amid higher-than-anticipated borrowing costs.
In a letter to the UK’s 17 regulators, Reeves and Starmer called for each body to propose five reforms to boost economic expansion over the coming year. Reeves indicated she is willing to enact legal changes if necessary, highlighting Starmer’s commitment to “rip up regulation that blocks investment” so the regulatory framework aligns with contemporary economic needs.
Meanwhile, the potential scrapping of the £100 contactless limit is seen as another significant regulatory shift. Critics say archaic caps hinder consumer spending, while removing them could boost transaction volumes and better reflect modern purchasing habits.
Many in the financial services sector have welcomed the news, pointing out that mortgage arrears and repossessions remain at historically low levels, suggesting there is room for a controlled easing of lending rules. Charles Roe, director of mortgages at UK Finance, said the current regulations are restricting homeownership opportunities. Andrew Montlake, chief executive of mortgage broker Coreco, called the reforms a “sensible” evolution that could draw in thousands more buyers.
This pro-growth direction does bear striking similarities to ideas first floated by Liz Truss in her ill-fated premiership. Despite notable political differences, Reeves and Starmer share Truss’s diagnosis that cumbersome regulations hold back the UK economy.
Reeves’s meeting with the regulators underscored the tension inherent in balancing pro-growth measures with safeguarding consumer and market stability. Watchdogs, whose remit is traditionally to minimise risk, must now adapt to a shifting policy landscape that demands a more flexible stance on regulation. If Labour’s leadership is serious about a bold deregulation drive, it will likely have to alter statutory powers and brace for battles with entrenched interests.
For first-time buyers and businesses alike, the outcome of these deliberations could be transformative, potentially easing access to finance while accelerating an economy in need of fresh momentum.
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Mortgage reforms set to loosen for first-time buyers in pro-growth push