Rachel Reeves considers easing lending rules as homebuyers face higher mortgage costs

Rachel Reeves

The chancellor Rachel Reeves is said to be considering proposals from the Financial Conduct Authority (FCA) to simplify mortgage lending rules with a view to making it easier for homebuyers to get a foot on the housing ladder.

The City regulator has outlined plans to boost economic growth and home ownership by reviewing current lending restrictions, which were tightened after the 2008 financial crisis.

The move comes as inflation dropped to 2.5% last month,  increasing the chances of a potential interest rate cut that could make mortgages more affordable.

The FCA’s proposals include reviewing how much first-time buyers can borrow and potentially issuing more loans to customers with smaller deposits.

The regulator said it would work with the government to remove “overlapping standards” such as the Mortgage Charter, which many lenders signed up to during the higher rate environment.

The FCA wants to show it supports Labour’s goal of boosting economic growth, but still ensures that lending practices remain responsible.

Currently, banks can only lend 15% of their total mortgage loans to people who are borrowing more than 4.5 times their yearly salary.

The Bank of England previously scrapped rules requiring lenders to check if homeowners could afford mortgage payments at higher interest rates in 2022.

Matt Smith, mortgage commentator at Rightmove, welcomed the potential changes.

He 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.”

Research by Alexander Hall has revealed that despite the reduction in interest rates seen during the closing stages of last year, the average monthly cost of a mortgage has increased by 8.1% year on year.

Alexander Hall looked at the average cost of a mortgage for homebuyers in the current market based on a 25 year mortgage term and an 80% loan to value on the current average house price and how the cost of climbing the ladder has increased versus this time last year.

The research shows that today, the average mortgage rate stands at 4.3%, up from 4.03% in January 2024.

The average cost of a home has also increased by 5.1% since January of last year, now standing at £292,059.

This means that, for the average homebuyer, a mortgage loan of £233,657 is required after placing a 20% deposit of £58,412.

With both the cost of a home and the average mortgage rate having climbed over the last year, it’s no surprise that the monthly cost of a mortgage has also increased.

Today, the average buyer making a full mortgage repayment can expect to pay £1,272 per month – an increase of 8.1% or £95 per month.

This means that over the course of a year, today’s homebuyers will be £1,142 worse off compared to those who purchased this time last year.

Stephanie Daley, director of partnerships at Alexander Hall commented: “A greater degree of stability returned to the property market in 2024 and we certainly saw a settling of the landscape with respect to the mortgage market.

“However, despite two reductions to the base rate, we haven’t seen mortgage rates follow suit and, in fact, the monthly cost of a mortgage today sits higher than it did this time last year.

“This is an important factor for homebuyers to be aware of, particularly now that many will be acting with haste in hopes of beating the stamp duty deadline which expires on the 1st April this year.

“It’s always best to seek the advice of an expert mortgage advisor when looking to buy in any market conditions, as this will ensure you secure the very best mortgage available to you based on your financial position within the market.”

 

Interest rate cut next month is a ‘sure bet’ amid weak growth and lower inflation

 

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10 Comments

  1. GreenBay

    Why would they even consider this? Increase demand, by allowing more money into the market will just push prices up, making it harder still for FTB’s the very opposite of what they want to achieve!
    And that isn’t even considering whether the fact there are low repossessions at the moment is precisely because of the rules the mortgage lenders have been following.
    Are people memories this short?

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    1. ARC

      They’ll be lending 125% of the value again before we know it!!

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    2. CountryLass

      That was my first thought, didn’t we have these rules tightened for a reason?? Labour are back in power, and going straight for the plans that had the issues last time…

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  2. Bless You

    Humans are simply not intelligent enough to work this out. For every winner there are 10 losers.

    The second banks started lending on multiples the system was doomed for failure.

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  3. Hodge7

    There are 2 potential problems for owning your home.1. Is the potential to borrow. 2. Is the potential to repay.
    The latter problem is easily resolved by compulsory payment protection. We used to have MIG and nobody batted an eye with this single premium and there is nothing to stop it being charged again,albeit utilised differently.

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    1. CountryLass

      What is MIG?

      And I do think that more lenders should take rental payments into consideration when looking at ability to repay. If I was renting my house, I’d be paying somewhere around £900-£1,000 at a conservative estimate. My mortgage payment is less than £600 per month…

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  4. biffabear

    Don’t worry everyone, Rachel from customer services is on it.

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  5. Hodge7

    Having said that, the city regulator is full of non qualified people with a law degree who are great at writing a consultation paper that is devoid of practical experience.
    These were the same people who made life providers write out with a re/amber/ green verdict on endowment but didn’t consider terminal bonus of up to 50% that had been achieved or the people who eschew the mantra of the past is no guide to the future. Given that we have university’s teaching based on the past it’s probably time they gave that a second thought!

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  6. singingagent

    When they relaxed Bank Gearing for mortgages and increased the multiple of earnings from 3x to 4x, 5x and self-certification in 2002 we saw starter houses increase in value by 100% by January 2003. If people can borrow more – they will borrow more. Government tinkering usually causes inflation, which does not help first time buyers. The Deputy PM can’t help “the girl from accounts” because she bought a Council House with a major discount, and the PM is a multi millionaire, so nobody with experience of the real world.

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    1. CountryLass

      not to mention that buying the council house with a major discount has caused ongoing issues with regards to PRS and council housing stock that we still have not recovered from…

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