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UK financial regulators have proposed allowing banks to lend more money to first-time buyers with small deposits and low incomes as they respond to government calls for more risk-taking to boost the economy.
The proposals may lead to increased risk limits loan bailouts forced on banks in response to the massive losses of the 2008 financial crisis, when many lenders had to be bailed out by the government.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told Keir Starmer this week that the watchdog is considering easing some of these restrictions to allow banks to increase their “responsible risk-taking” in the mortgage market, according to a person briefed on the matter. letter.
The response was also sent to chancellor Rachel Reeves and business secretary Jonathan Reynolds.
The government has asked the FCA and other UK regulators to present ideas for regulatory reform that could increase risk and investment in the economy, as the prime minister seeks to deliver on his promise to boost growth.
Starmer told investors last year that he would “tear down the bureaucracy that is preventing investment” in the UK, and Reeves has called on regulators this week to outline how they intend to work to boost growth.
The FCA's proposals, first reported by The Times, do not include specific details of any planned policy changes but suggest consultation on whether mortgage lending rules could be eased to help more people own their homes now that default rates have fallen to low levels.
UK mortgage lending is governed by a mix of rules from the FCA and the Bank of England. These banks are restricted from having more than 15 percent of their loan book in loans worth more than 4.5 times the borrower's income.
The FCA could drop affordability tests to see if borrowers can withstand future interest rate rises, and allow them to use evidence of excess rent payments to borrow more.
Another area that could be tested is the amount that the big banks want to back mortgages worth at least 90 percent of the value of the property they are securing.
The Treasury said Reeves would examine the FCA's proposals and work closely with the financial regulator to develop them further.
Reeves said he believed that since the financial crisis there had been too much intervention by regulators to reduce risk at the expense of economic growth.
“The chancellor has said there will be no return to the extreme risk of a financial crisis, but is committed to restoring the system over time,” the Treasury said.
The idea of reducing mortgage rules was welcomed by Charles Roe, director of mortgages at trade body UK Finance. “Reviewing mortgage laws will help with affordability issues, not only for first-time buyers but also those looking to upgrade their housing,” he said.
Richard Donnell, managing director of property developer Zoopla, said the “biggest barrier” preventing many people from getting a mortgage was the affordability stress test, which requires banks to assess whether borrowers can afford rising borrowing costs.
“This has come at the cost of pricing a lot of people out of the market,” said Donnell, adding that before the rise in interest rates, lenders were stress testing that borrowers could reach 6 percent and that has increased. up to 8-9 percent.
But Sir Vince Cable, a former Liberal Democrat business secretary in the 2010-2015 coalition government, said relaxing the mortgage requirements could be too dangerous.
“It looks eerily similar to the trends two decades ago that culminated in Northern Rock's 125 percent mortgage and self-guarantee, which didn't end well,” he said. “Even if there is no systemic risk, this could add demand without supply – we know where that leads.”
Some figures in the City of London have also expressed concern about regulators being forced to prioritize growth in line with fiscal soundness.
“Reducing the risk profile of firms in the financial markets in general without stifling growth has always been the role of regulators,” said Romin Dabir, financial management partner at law firm Reed Smith. “Some would argue that an unrelenting focus on one of these goals can lead to neglecting the other.”
Another idea put forward by the FCA is to raise the £100 limit for spending money on invisible card transactions, put in place for fear that it could open the door to fraudsters.
The FCA declined to comment.
StarmerReeves and Reynolds wrote to the administration 17 before Christmas, telling them to put growth measures that can help boost the economy, with a deadline of January 16 to respond.
On Thursday, Reeves met with half a dozen of those dogs, telling them they needed to bring about a “mental change in policy” instead of “focusing too much on risk”.
FCA was not at the meeting but is expected to meet with Reeves in the coming days.