The Chancellor is continuing a drive to increase growth, and part of the measures being discussed, according to reports, centre around relaxing the rules governing mortgage lending.
It comes in response to a request made to UK regulators from the Chancellor on Thursday to come up with ideas for growth and move away from the primary goal being avoiding risk.
Should the rules become relaxed, the result is likely to be that people will be able to borrow more. We look in more detail at how this might work.
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Also up for discussion is stress testing, a safety valve introduced after the 2008 crash to make sure people could afford their mortgage and bills even if rates go up by several percentage points. This rule could also be relaxed to less stringent levels.
This would be a popular move, as currently a renter who has paid their rent for say five years without missing any payments may not be given a mortgage for the same amount due to more stringent affordability calculations for buying compared with renting.
After the 2008 Credit Crunch Governments all over the world were left bailing out banks in financial straits caused largely by irresponsible lending. This happened when borrowers on low-interest rates or with small or non-existent deposits were unable to pay their mortgages when interest rates increased, which ultimately lost banks a lot of money.
After the crash, a crackdown meant that people not only had to prove income, but they had to pass far stricter affordability calculations.
Who will this all help?
Some experts say that a relaxation of the rules could help borrowers.
“It will give lenders some room to help more people get the borrowing they need – and taking into account the rental payments people make as proof of affordability makes all sorts of sense,” he adds.
“People moving from a flat to a house have found it challenging, because of the growth in the gap between flat and house prices ever since the pandemic,” says Beveridge, of Hamptons estate agency.
There are also some limitations to what a relaxation of the rules could do, particularly in expensive areas such as London.
He adds that the proposed changes “will help at the margins but are unlikely to transform access to the market,” especially in the south of England.
What it is likely to do is boost transaction numbers, she says.
“A lot of that is down to the mortgage rules. Pre crash we saw 1.6m transactions, last year which was a relatively busy one for the market, saw 1.1m transactions,” she adds.
Would the changes lead to higher interest rates?
The January bounce in the property market – where people list in greater numbers as they have been holding off until the New Year – hasn’t happened to the extent that the property market was hoping for.
What are the risks of relaxing the rules?
If borrowers borrow more, then first time buyers on two-year fixed-rate deals could find it tricky to remortgage if house prices go down, and they have borrowed more than their house is worth.
“Trying to saddle [first time buyers] with more debt just to effect some short term growth is madness and will just push house prices up further,” said Jane King, an independent mortgage broker, on social media site X.
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