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Strict rules on mortgage lending could be loosened to allow more people to borrow for a home, as regulators respond to a call to boost the economy.
In a newly-published letter, the UK’s financial regulator the Financial Conduct Authority (FCA) says it will investigate ways to simplify rules brought in following the 2008 financial crisis.
It is likely to review the balance between protecting borrowers and access to home loans, in a move that would be welcomed by lenders.
The FCA will also consider whether to scrap the £100 cap on purchases made by contactless cards, in line with digital wallets where providers set their own limits.
Prime Minister Sir Keir Starmer, the chancellor and business secretary wrote to the UK’s main regulators in December asking them to come up with ideas for reform that could boost economic growth.
They gave a deadline of mid-January. In its response, published on Friday, the FCA outlined various programmes underway as part of its aim to boost growth.
But two new ideas are among others mooted, looking at mortgages and contactless payments.
Strict rules mean lenders have to be sure that people can repay mortgages, testing them for higher rates of interest.
Other rules were also imposed on mortgage providers after the financial crisis almost 20 years ago exposed reckless lending and put major financial institutions at risk.
The FCA points to current low numbers of borrowers missing repayments, or having homes repossessed, as evidence of questioning whether the rules are too strict.
“We will 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 letter by FCA chief executive, Nikhil Rathi said.
It will consider the balance between its primary objective of protecting consumers, and a secondary objective of promoting growth.
Same mistakes?
Lenders have welcomed the move, but some analysts and borrowers may question whether lessons have been learnt from the crisis.
Charles Roe, director of mortgages at UK Finance, which represents lenders, said: “Reviewing the mortgage lending rules would help with affordability issues, not just for first time buyers but also those looking to move further up the housing ladder.
“Banks will always lend responsibly but the current rules are restricting the number of people who can get a mortgage and so could be relaxed.”
Analysts said the move could prove to be more beneficial in certain parts of the country.
“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,” said Richard Donnell, executive director of research at Zoopla.
“Finding the balance not easy and is compounded by the huge north-south divide in affordability.”
Contactless limits
The FCA’s second new idea is to scrap the £100 limit on contactless cards, to make it easier to spend.
When contactless card payments were introduced in 2007, the transaction limit was set at £10. Cards were generally used in this way in place of small change when buying snacks, papers and occasional groceries.
The limit was raised gradually, to £20 in 2012, then to £30 in 2015, before going up to £100 in October 2021.
Both ideas would be designed to encourage spending but could also be inflationary. They would need to go through reviews and consultation, so are unlikely to be imminent changes, even if approved.
The letter also outlines potential digital advances, such as requiring firms to accept electronic verification of death to speed up bereavement claims in insurance.
