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.
Hello and welcome to this week’s Home Front. It was only a matter of time until a government – on either the left or the right – asked for the strict mortgage rules put in place after the 2008 financial crisis to be relaxed.
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.
As I understand it, Reeves has actually been pushing for this for some time.
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.
After subprime mortgage lending in the US (and, indeed, some here in the UK too) caused a global financial crisis, the amount of credit that mortgage lenders can give people was capped.
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.
In short, this means regulators were given oversight to determine how much people could borrow in relation to their income and the value of the home they were buying.
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.
The 2015 changes also saw a rule put in place which states that mortgage lenders are only allowed to lend 15 per cent of their total mortgage loan book to people whose borrowing is worth more than 4.5 times their annual salary.
These regulatory changes were arguably necessary at the time. Nobody wants a repeat of 2008.
However, they had some nasty side effects. Because lending was more restricted, even though interest rates were historically low, it became harder for first-time buyers – who generally have lower incomes and smaller deposits – to buy homes. As a result, through the 2010s, buy-to-let lending boomed and homeownership for younger adults declined. At the same time, house prices soared, pricing young people out of the housing market and trapping them in private renting.
This has weighted Britain’s housing market towards people with family wealth and investors. Ultimately, this meant fewer new homes being built and sold.
For that reason, the Conservatives introduced a government equity loan via Help to Buy in 2013 in a bid to stimulate the housing market and, by extension, Britain’s economy. It worked, up to a point, but it also exposed the Government to house price fluctuations. The scheme was wound down by Theresa May and ended formally in 2023.
But, then something else happened. Interest rates started to rise as the post-pandemic inflation crisis took hold.
This meant even fewer first-time buyers were able to gain mortgages because higher interest rates made it even more difficult to pass affordability checks. I should know…I was rejected when I reapplied for my own mortgage (which I’d been paying for five years) at a higher interest rate following my separation from my long-term partner with whom I used to own my flat before I bought him out.
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.
However, lenders still had their own internal checks and balances so it didn’t make a huge difference to lending volumes.
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.
Reeves needs to get Britain’s economy going. She knows that interest rates aren’t going to fall dramatically and that we may never return to the ultra-low rates seen after 2008. She also knows that building homes and encouraging banks to lend against them will stimulate the economy because housebuilding creates jobs and mortgages boost financial services.
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.
So, it shouldn’t come as a surprise that the Chancellor wants the FCA to look at relaxing mortgage lending regulations. Allowing banks to take more risks by lending first-time buyers money at higher loan-to-value and debt-to-income ratios would boost the housing market and the wider economy.
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.
If the rules are further relaxed, first-time buyers will be encouraged to take on more debt at higher rates for longer. In the short term, this could push house prices up because it will create more competition for homes. But, longer-term, this could leave them exposed to house price falls and sudden interest rate spikes in the future. And, like me, they may then find it difficult to remortgage or upsize if the affordability goalposts move.
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.
Labour will soon announce the location of their new towns. This is going to form another key arm of Reeves’ push for growth. But where should they go?
The independent think tank UK Day One has a few ideas, but not everyone likes them.
Read my exclusive report here.
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.
At the end of November, our father died suddenly. This, as you might expect, meant that Kelly wasn’t at home and checking her post daily as she was with our mother.
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.
Kelly’s question to me was as follows: “I missed one letter from First Port about payment of my service charge which was £634.99 because my Dad died. They did not call me or email me and, instead, they referred me to solicitors who threatened legal action and added £304.01 to my account in legal fees.”
“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.”
“I paid the full amount, including the administration fee on January 2nd as soon as I returned home after Christmas, but First Port refused to refund the charges even once aware of my circumstances. How can this be allowed?”
Kelly forwarded me the emails which did not explain First Port’s process, including why they did not email or telephone.
I asked First Port why they only give leaseholders one month to pay annual charges before escalating to credit collections, why they use post – which can be unreliable – to communicate with customers and how they support homeowners during challenging times?
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.
“Had we been able to reach her prior to the case being referred to an external collections team, we would have been aware of the circumstances and could have taken steps to resolve the issue.
“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.”
A refund is on its way to Kelly. If you’ve had problems with your service charge, I’d love to hear about them.
Send in your questions to: @Victoria_Spratt, on X, formerly Twitter, @vicky.spratt on Instagram or via email [email protected].
Vicky’s pick
I’m currently reading a brilliant new book by Vanity Fair’s Lili Anolik about the fraught friendship between the American writers Eve Babitz and Joan Didion. It reads like a novel and is full of great gossip about Didion, in particular, who has achieved icon status in recent years but, in many ways, remains a complete enigma. 10/10 would recommend.
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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