The Bank of England is exploring one of the biggest reforms of its mortgage rules in more than a decade, opening the door to a surge in riskier lending in response to calls from the government and industry to boost home-ownership. Regulators are considering overhauling restrictions introduced after the 2008 financial crisis, which have limited how many mortgages can be granted to borrowers with a higher multiple of their income. Since 2014, most UK lenders have been barred from handing out more than 15 per cent of mortgages to people borrowing more than 4.5 times their income.
Under pressure from lenders and the government, the central bank's Financial Policy Committee (FPC) is examining raising the threshold for a higher-risk mortgage to five times household income. Bank lobby group UK Finance estimated that such a shift could free up extra lending capacity equivalent to 7 per cent of new residential mortgages, which last year totalled about £200bn. The change could also ease the blow to banks from this week's Budget tax rise and provide relief to the UK's faltering housing market, which has been hit by rising mortgage rates, slowing activity and stagnating prices.
Banks and building societies have called for reform for several months, arguing it would free up lending to first-time buyers, the self-employed and workers on low but predictable incomes. Chancellor John Healey backed the push, urging the Bank to consider changes that could increase home ownership while protecting financial stability. UK Finance said mortgages issued between 4.5 and five times income have had lower arrears than those issued below 4.5 times over the past decade, and argued that raising the threshold would not materially increase default risk.
The Bank said it keeps its housing tools under regular review. Some lenders have also urged changes such as raising the 15 per cent limit on high-LTI mortgages and exempting more small lenders from the rule. Under last year's changes, the cap is now applied only to the industry as a whole, and the number of first-time mortgages with an LTI ratio of 4.5 or above reached 45,800 last year, up 66 per cent from 2024.
Source: Financial Times Companies · Summarized by HeadlinesBriefing