The “inexorable” drive to cut risk after the credit crisis has left credit-worthy buyers unable to get on the housing ladder, UK Finance has warned in its response to the FCA’s Mortgage Rule Review discussion paper.
The City watchdog’s consultation is set against Labour’s plan to build 1.5 million houses by the next election.
When regulators relaxed a decade-long lending rule in July to allow large lenders to lend over 15% of their overall new home loans at over 4.5 times a buyer’s income, the Chancellor made her views clear on what she hoped the move would bring.
Rachel Reeves said the move would lead to 36,000 extra first-time buyers entering the market in the first full year of the relaxations.
UK Finance welcomes this move to ease affordability, which it believes will help more borrowers access finance without materially increasing risks.
However, it warns that there needs to be a careful analysis of the impact before restrictions are relaxed any further, because this could risk “accelerating house price increases unless more homes are built”.
UK Finance says: “Since the global financial crisis, we have seen an understandable but seemingly inexorable shift towards risk minimisation and risk aversion within the mortgage and financial services sector.
“However, this has arguably come at a cost to consumers and the wider economy.
“Now is the right time to consider if the regulatory constraints put in place since 2014 have left mortgages out of reach for many creditworthy homebuyers.”
The Building Societies Association takes a similar stance in its response to the FCA Mortgage Rule Review DP25/2.
It says: “We welcome the FCA taking a broader view of comparing the customer outcome of home ownership vs remaining in rental property, often at greater cost, and missing the opportunity to create property wealth.
“While this may result in increases in arrears and possessions, these have been very low through the Covid period and cost of living crisis.
“The risk now feels inappropriately calibrated vs the function of enabling greater access to home ownership.”
UK Finance also supports the government’s review of the Financial Ombudsman Service.
It warns that currently, “one of the key constraints on risk appetite is the FOS and its current ability to independently interpret the meaning of regulatory rules without reference to the FCA”.
But it hopes that the review will provide “the clarity and predictability firms need to have the reassurance to innovate in line with their individual strategic aims”.
While both trade bodies broadly support the drive towards greater innovation, UK Finance sounds a note of warning about unintended consequences.
UK Finance says: “Some members share the concern that limited uptake of lending in higher risk areas could cause foreseeable harm.
“Without careful consideration, a new generation of mortgage property prisoners could be created where there is limited consumer choice to move lenders.”
