The Financial Conduct Authority (FCA) has revealed this week that it is contemplating simplifying the strict mortgage lending rules implemented following the 2008 financial crisis. This could potentially help more people to get onto the property ladder.
Currently, lenders are limited in the number of large mortgages they can approve, with a cap stating that no more than 15% of a lender’s mortgage book can consist of loans for properties costing over 4.5 times the buyer’s annual salary. However, this may soon change to allow individuals to borrow larger amounts.
This could be advantageous for those on lower incomes, provided they can manage their repayments. Another potential change being considered relates to affordability rules that assess whether borrowers can sustain repayments if interest rates unexpectedly rise, according to the Mirror.
Rental payments might also soon be included as part of your borrowing capacity, rather than focusing solely on your income, The Times reports.
Rightmove’s mortgage specialist Matt Smith said, “It is really encouraging that the market regulators are now considering what a review of mortgage affordability could look like. Regulatory change is what we’ve been calling for, as that is what is needed to truly impact home-mover affordability, particularly for first-time buyers. We’ve seen some innovative products and schemes announced by lenders to try and do their bit to support home-buyers, but they need support from both the government and regulators to really drive more options for people.”
On the other hand, Richard Donnell, Zoopla’s executive director for research, warned: “The big question is whether current rules go too far but there is a risk for consumers and the government in how far this might go. Finding the balance not easy and is compounded by the huge north-south divide in affordability.”
These remarks follow the Government’s scrutiny into ways the Financial Conduct Authority (FCA) can boost economic growth, with the FCA suggesting that despite tight regulation, mortgage defaults remain low. Nikhil Rathi, FCA chief executive, declared the authority would: “Begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.”
The Financial Conduct Authority is planning to simplify regulations by potentially scrapping “overlapping standards”, such as the Mortgage Charter that was brought in last year to help mortgage holders struggling with soaring interest rates. However, many financial institutions have already been offering extra support measures.
The FCA is also looking at doing away with the £100 limit on contactless payments, allowing firms and customers more flexibility. This cap has been gradually raised from £20 in 2012, to £30 in 2015, and then to £100 in October 2021.
Additionally, the FCA is considering bringing in new digital service standards, such as requiring firms to accept electronic verification of death, which could speed up insurance claims after a bereavement.