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And, that’s exactly what Labour are doing. Following Chancellor Rachel Reeves’ meeting with regulators last week as part of her bid to get them to embrace a “pro-growth” agenda, she has welcomed proposals for mortgage lenders to be allowed to take more risks.
It may well be a smart play for the Chancellor, but it’s not without its risks. So, first, let’s look at what the rules are because far from being an example of excess red tape, they exist for good reason.
This happened in 2015 when Parliament passed legislation granting the Financial Conduct Authority (FCA) and the Bank of England’s Financial Policy Committee (FPC) what’s known as “powers of Direction” over lenders’ loan-to-value (LTV) and debt-to-income (DTI) ratios for owner-occupied residential mortgages to ensure Britain’s financial stability.
This saw the introduction of financial stress-testing rules which limited how much homebuyers could borrow against their income. Lenders were forced to be sure that mortgage borrowers could afford repayments at 3 percentage points above their standard reversion rate (SVR) before they could be approved for a home loan. SVRs are lenders’ default rates, which are applied after cheaper fixed-rate deals expire.
These regulatory changes were arguably necessary at the time. Nobody wants a repeat of 2008.
This has weighted Britain’s housing market towards people with family wealth and investors. Ultimately, this meant fewer new homes being built and sold.
But, then something else happened. Interest rates started to rise as the post-pandemic inflation crisis took hold.
The Bank of England saw it all coming. That’s why they quietly scrapped their mortgage market affordability test in 2022. They did this before rates jumped up.
As I’ve written at length, this caused the housing market to stall. And, while it has recovered slightly, rates remain high and home sales are not where the Government would like them to be.
But, she’s between a rock and a hard place because her own fiscal rules mean she’s severely limited in terms of what she can borrow to invest.
Reeves is in an inevitable position and she’s trying to expand who can access mortgage credit. This is a good thing. But, it will come at a cost.
In her rush to achieve short-term growth, Reeves needs to be very, very sure that she isn’t throwing first-time buyers under the bus.
The independent think tank UK Day One has a few ideas, but not everyone likes them.
Ask me anything
This week’s question comes from my sister, Kelly. I’ll be honest and say that I was taken aback when she told me what was going on with her leasehold new build home on the outskirts of London. Which, surely, just goes to show that anyone can be impacted by the housing crisis and the problematic leasehold/freehold system.
She was then shocked in January to discover that she had received letters from solicitors demanding payment plus additional charges for an unpaid service charge from the management company for her housing estate – First Port.
“When I wrote to First Port, they refused to talk to me and said I had to talk to the solicitors which was going to incur further charges.”
Kelly forwarded me the emails which did not explain First Port’s process, including why they did not email or telephone.
A spokesperson for the property management company said: “We recognise that this has been a challenging time for Ms. Spratt and offer our sincere condolences. Unfortunately, our only means of contacting Ms. Spratt was by post, as we had not been provided with a telephone number or email address.
“Once we were aware of the circumstances, the tone of the emails sent to Ms. Spratt did not meet our expected standards and we will address this with the colleagues involved. We will be reimbursing the administration fees by way of an apology and remain available to discuss any further questions or concerns Ms. Spratt may have.”
Send in your questions to: @Victoria_Spratt, on X, formerly Twitter, @vicky.spratt on Instagram or via email vicky.spratt@inews.co.uk.
Vicky’s pick
Didion & Babitz is published by Atlantic Books.
This is Home Front with Vicky Spratt, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.
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