Mortgage rules could be eased to boost loans

In response to the government's call to stimulate economic growth, regulators are considering easing strict mortgage rules to allow more people to borrow for home purchases. The UK's Financial Conduct Authority (FCA) stated in a newly released letter that it will explore ways to simplify rules implemented after the 2008 financial crisis. This move aims to re-evaluate the balance between protecting borrowers and accessing housing loans, and is expected to be welcomed by lenders.

The FCA will also consider whether to remove the £100 spending limit on contactless bank cards to align with digital wallets, which allow providers to set their own limits. UK Prime Minister Keir Starmer, the Chancellor of the Exchequer, and the Secretary of State for Business wrote to major UK regulators in December, asking them to propose reforms that could boost economic growth, setting a mid-January deadline. The FCA, in its response released on Friday, outlined various projects it is undertaking to promote economic growth, including the two new proposals regarding mortgages and contactless payments.

Strict regulations mean lenders must ensure borrowers can afford mortgage repayments and test them against higher interest rates. The financial crisis about 20 years ago exposed reckless lending practices that put major financial institutions at risk, and other rules have since been imposed on mortgage providers. The FCA noted that there are currently fewer borrowers falling behind on payments or having their homes repossessed, suggesting a need to question whether the rules are too strict. "We will begin work on simplifying the responsible lending and advice rules for mortgages, supporting home ownership and starting a discussion on the balance between access to lending and levels of default," said FCA chief executive Nikhil Rathi in the letter. The agency will consider the balance between its primary objective of protecting consumers and its secondary objective of promoting growth.

Lenders have welcomed the move, but some analysts and borrowers may question whether lessons have been learned from the crisis. Charles Roe, mortgages director at UK Finance, which represents lenders, said: "A review of mortgage rules will help address affordability issues, not just for first-time buyers but also for those looking to move up the housing ladder. Banks will always lend responsibly, but the current rules limit the number of people who can access a mortgage, so a relaxation could be helpful." Analysts suggest the move may be more beneficial in some regions. "The big question is, have the current rules gone too far, but what are the risks of this approach for consumers and the government," said Richard Donnell, executive director of research at Zoopla. "It's not an easy balance to strike, and it's exacerbated by the massive gap in affordability between the north and south."

The FCA's second new idea is to remove the £100 limit on contactless bank cards to facilitate spending. When contactless card payments were introduced in 2007, the transaction limit was set at £10. This method was commonly used as an alternative to cash for purchasing snacks, newspapers, and occasional groceries. The limit was gradually increased to £20 in 2012, £30 in 2015, and then to £100 in October 2021. Both measures aim to encourage spending but could also contribute to inflation. They will need to be reviewed and consulted on, so even if approved, they are unlikely to be implemented immediately. The letter also outlined potential digital advancements, such as requiring companies to accept electronic verification of death to speed up bereavement claims in insurance.