Initially reported in The Times, regulators are examining financial stress-testing rules that mean mortgage lenders can only lend 15% of their total mortgage loan book to people whose property is worth four-and-a-half times their annual salary.
They are also considering changing affordability tests to include evidence of former rental payments as opposed to just income.
The report added that banks are pushing the Bank of England to cut the amount of capital they need in reserve for 90% loan-to-value (LTV) mortgages.
It comes after Chancellor Rachel Reeves met with regulators across several UK industries earlier this week and urged them to propose reforms to support growth.
Earlier this week, the Liberal Democrats called on Reeves to hold an emergency summit with banks to reassure mortgage borrowers that their payments would not rise amid bond market turmoil leading to swap rate increases.
Introducing Lloyds Living
Sponsored by Halifax Intermediaries
Several lenders have increased their rates this week, including Santander, HSBC and TSB.
Arjan Verbeek, CEO of Perenna, said: “If the reports are right, we may finally be seeing regulators and government alike wake up to the fact that too much regulation can also damage consumer outcomes, rather than support them – and in doing so, undermine growth. The mortgage market is a case in point.
“The Bank of England should be commended for assessing what changes it could make based on where the market is today. If we want to build a nation of homeowners, it is critical to regularly review and revise regulations that whilst protect the system from risk, stop the market from serving credit-worthy first-time buyers. The loan to income (LTI) flow cap sticks out like a sore thumb. It acts as a handbrake on today’s mortgage market, stopping credit from reaching those who will benefit from it most.”
He said lenders can usually only offer four-and-a-half times LTI on around 15% of its loan books, so the level of high LTV and LTI lending required to tackle the housing affordability crisis “simply cannot exist”.
“Without change, many more people will stay renting rather than become homeowners. Amending or removing the LTI to reflect the products in the market like long-term fixes minimises the risks the regulators are concerned with and would be a gigantic leap forward for the hundreds of thousands of frustrated first-time buyers shut out of the market,” Verbeek added.
