FCA considers revising mortgage lending rules to aid first-time buyers

This potential regulatory shift aims to aid first-time buyers who are currently facing hurdles in securing a property.

Presently, lenders are limited by a regulation that caps the number of large mortgages they can issue. Specifically, no more than 15% of a lender’s mortgage portfolio is permitted to consist of loans for properties that exceed 4.5 times the buyer’s annual salary. 

The FCA is contemplating changes to these rules, which could enable individuals to borrow higher amounts, particularly benefitting those with lower incomes, assuming they are capable of managing their repayments. 

The FCA is also evaluating the possibility of modifying affordability rules, which currently assess a borrower’s capacity to maintain repayments in the event of an increase in interest rates. According to The Times, there is a consideration to include rental payments in the borrowing calculations, rather than relying solely on income.

This discussion comes in the wake of a government inquiry examining the role of the FCA in fostering economic growth.

With mortgage default rates and home repossessions remaining low, FCA chief executive Nikhil Rathi indicated that the authority intends to work toward "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."

Moreover, the FCA is planning to streamline regulations that may include the removal of "overlapping standards," such as the recently introduced Mortgage Charter aimed at assisting borrowers during times of rising interest rates. In the meantime, banks and building societies are already implementing various support measures for affected borrowers.

Additionally, the FCA is contemplating the elimination of the £100 contactless payment limit, a restriction that has been incrementally raised from £20 in 2012, to £30 in 2015, and then to £100 in October 2021, in a bid to offer more flexibility for firms and customers. 

Another potential initiative under discussion involves establishing new digital service standards, such as requiring firms to accept electronic verification of death, which may help speed up bereavement claims in the insurance sector.