Finance giants, including Nationwide, are calling for a radical shift in the way home loans are structured to allow buyers to take on much larger mortgages.
They are urging the government to lift restrictions on loan-to-income ratios that generally limit borrowing to 4.5 times a buyer’s income.
Lenders say they should be able to carry out their own affordability checks on buyers to decide how much people can borrow, rather than just relying on a crude multiple of income.
However, critics are concerned that any move to allow people to take on supersize mortgage could be dangerous. It could push up property prices while leaving buyers vulnerable if interest rates and repayments were to rise sharply.
A new “Plan for Growth,” published by UK Finance, the banking industry’s trade association, lays out several key proposals aimed at easing the regulatory constraints on mortgage lending.
The trade body argues that these existing restrictions have made it more difficult for many to get onto the property ladder, particularly first-time buyers.
As part of its push for greater flexibility, UK Finance is recommending that the Bank of England ease its loan-to-income flow limit for new residential mortgages, especially for those looking to borrow above 4.5 times their income.
The organisation also advocates for reforms to remove outdated regulations, like the Mortgage Charter, which it believes no longer serves the needs of today’s homebuyers.
Nationwide, which has long been an advocate for helping first-time buyers, has already felt the impact of the current limits. Last year, its Helping Hand mortgage product, which accounts for nearly a quarter of its first-time buyer loans, had to be scaled back due to these regulatory constraints.
Henry Jordan, Nationwide’s director of home loans, said: “Many potential homeowners are left behind by the current rules, which limit borrowing power despite their ability to repay.
“We are at the limits of where we can take our Helping Hand mortgage. If the LTI (loan-to-income) limit were increased by just 20%, we could fund an additional 10,000 first-time buyers over the next year.”
He added: “A more flexible regulatory environment would allow us to better serve the growing demand from first-time buyers.”
The proposed changes also include a series of other measures, such as easing rules around how much capital finance giants must hold to support their lending.
This call for regulatory reform comes amid a growing recognition that the current system may be stifling potential growth within the housing market.
UK Finance’s chief executive, David Postings, argues that the financial services industry is central to the UK’s economic success, and that a more progressive regulatory framework is key to ensuring the country remains a global financial leader.
“The current rules are holding back innovation and investment,” Postings says. “We need a system that allows financial services to thrive and grow.”
Nationwide’s push for change comes as the government continues to reassess its stance on regulation. In a key speech last November, Chancellor Rachel Reeves acknowledged that too much red tape has hampered growth since the 2008 financial crisis. She expressed a desire to reduce burdens on financial institutions and promote a more dynamic financial environment.
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