First-time buyers to benefit from major mortgage rules shakeup

Person signing papers in front of small model house
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The Financial Conduct Authority (FCA) has revealed this week that it is contemplating simplifying the strict mortgage lending rules implemented following the 2008 financial crisis. This could potentially help more individuals to become homeowners.

Currently, lenders are limited in the number of large mortgages they can approve, with a cap stating that no more than 15% of a lender's mortgage portfolio can consist of loans for properties priced over 4.5 times the buyer's annual income. However, this may soon change to allow people to borrow larger sums.

This could be advantageous for those on lower incomes, as long as they can manage their repayments. Another potential change being considered relates to affordability rules that evaluate whether borrowers can sustain repayments if interest rates unexpectedly rise, according to the Mirror.

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Rental payments might also soon be included as part of your borrowing capacity, rather than focusing solely on your income, The Times reports.

Rightmove's mortgage expert Matt Smith has expressed optimism about the potential overhaul of mortgage affordability, saying, "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. We've seen some innovative products and schemes announced by lenders to try and do their bit to support home-buyers, but they need support from both the government and regulators to really drive more options for people."

However, Zoopla's research chief Richard Donnell advised caution, pointing out the delicate balance that must be maintained: "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. Finding the balance not easy and is compounded by the huge north-south divide in affordability."

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These perspectives emerge amidst discussions being stirred by the Government's inquiry into the Financial Conduct Authority's (FCA) role in economic growth. As part of its response, the FCA, under Chief Executive Nikhil Rathi, announced plans to: "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."

This comes along with observations that instances of borrowers falling behind on mortgage payments or facing repossession remain low.

The Financial Conduct Authority (FCA) is setting its sights on refining regulations, with a plan that might lead to scrapping "overlapping standards" such as the Mortgage Charter, which was established in 2023 to aid those with mortgages hit by rising interest rates. Despite this provision, financial institutions had already been stepping up with their own support initiatives.

Moreover, the FCA is contemplating the removal of the £100 contactless payment ceiling to give businesses and consumers more leeway. This limit has undergone gradual elevations from £20 in 2012, to £30 in 2015, and finally reaching £100 in October 2021.

As part of further innovations, the FCA is also considering putting forward new digital service benchmarks, including a requirement for firms to accept electronic verification of death to quicken the process of claiming insurance in times of bereavement.