Chancellor to unveil reforms before key Mansion House speech in the City of London
Rachel Reeves is to roll back post-financial crash red tape to allow people to borrow more for mortgages.
Under the measures, more mortgages will be available at more than 4.5 times a buyer’s income after a recommendation from the Bank of England that some banks and building societies should offer more high loan-to-income mortgages.
The Treasury said the move would create up to 36,000 additional mortgages for first-time buyers over the first year.
However, it could lead to concerns of a return to the risky mortgage lending by banks which contributed to the 2008 global financial crisis.
Then, the overextension of mortgage loans led to the UK and global finance system seizing up, causing chaos in the markets which led to the near-failure of some high-street lenders.
However, many in the City believe that the regulations introduced after that crisis have led to an overcorrection and inhibited investment and growth.
The Treasury said the change would mean that Nationwide building society would be able to offer its “Helping Hand” mortgage to people with lower incomes.
From Wednesday, eligible first-time buyers can apply for the mortgage with a £30,000 salary, down from £35,000; and joint applicants can do so with a £50,000 combined salary, down from £55,000.
The Treasury said this would support an additional 10,000 first-time buyers who use Nationwide each year.
Reduced income thresholds
There will also be permanent mortgage guarantee schemes ensuring high loan-to-value mortgages will continue to be available in times of uncertainty.
Meanwhile, a review of Financial Conduct Authority lending rules could allow prospective buyers to use their record of paying rent on time to show they can afford mortgage repayments.
The reforms will be unveiled by Reeves at a summit with finance executives in Leeds on Tuesday, ahead of her Mansion House speech in the evening.
She is hoping that easing regulations will help economic growth – a key plank of Government policy – and put more money in people’s pockets – the measure by which Labour has said its Government should be judged.
It comes after the Bank’s Governor, Andrew Bailey, appeared to criticise the Chancellor’s Budget decision to raise employers’ national insurance contributions, suggesting it had affected job numbers.
In her Mansion House speech in the City of London, Reeves is expected to talk of a UK “where people and businesses look to the future and talk about hope about opportunity.”
Reforms will ‘drive investment’
The Chancellor is expected to say: “I have placed financial services at the heart of the Government’s growth mission. Recognising that Britain cannot succeed and meet its growth ambitions without a financial services sector that is fighting fit and thriving.
“And I have been clear on the benefits that that will drive. With a ripple effect that will drive investment in all sectors of our economy and put pounds in the pockets of working people.”
The Government has put a premium on growing the economy in order to meet its spending commitments without having to raise core taxes. It has also said that the electorate should judge it on whether it has put more money in people’s pockets.
The speech will be seen as an attempt by the Chancellor to paint a more positive picture of the economy ahead of expected tax rises in autumn’s Budget and criticism of Labour for gloomy rhetoric when it came to power last year.
But some experts argue that despite the reforms, the housing market will still remain out of reach.
First-time buyers will ‘still struggle’
Nick Mendes, a mortgage expert at John Charcol brokers, said: “While these changes will make a real difference to many, they do not provide a complete solution to the broader affordability challenges in the housing market.
“In areas where property prices remain significantly out of step with average incomes, such as London and much of the South East, it is still likely that even those who now qualify for a mortgage will struggle to find a property within reach.
“The regional disparity in house prices means the benefits of these reforms will not be felt evenly across the country, and that remains an important concern.”
On the issue of risk, he said: “Extending higher loan-to-income mortgages is not inherently risky, but it must be supported by strong advice, proper oversight and a clear understanding of the borrower’s wider circumstances.
“We know from experience that rapid policy change, if not carefully implemented, can lead to unintended consequences, particularly if interest rates were to fluctuate in a way that puts additional pressure on borrowers.”
Phil Leivesley, a mortgage broker and the director of mortgages at LDN Finance, said: “I think we all welcome any help for first-time buyers, but there are already plenty of mortgage providers helping people with 5 per cent deposits.
“The best way to help first-time buyers would be for the Government to fulfil their pledge of building 1.5 million new homes over the next four years.”
Pedro Serodio, chief economist at the independent think-tank, The Centre for British Progress, agreed. “The housing crisis is one of the biggest barriers to growth in the UK. People are unable to afford homes near good jobs, which is a major reason for our productivity crisis,” he said.
“But we need to address the root cause: we have not been building enough homes for decades.”
