Strict rules on mortgages could be eased to allow more people to borrow to buy homes, as regulators respond to a call to boost the economy.
In a letter to be published on Friday, the Financial Conduct Authority (FCA) is expected to announce that it will explore ways to simplify rules put in place following the 2008 financial crisis.
It is likely to review the balance between borrower protection and access to home loans, a move that would be welcomed by lenders.
The FCA will also consider removing the £100 limit on contactless card purchases, in line with digital wallets.
Prime Minister Sir Keir Starmer, Chancellor and Secretary of State for Business, wrote to the UK’s top regulators in December asking them to come up with reform ideas that could boost economic growth.
They gave a deadline of mid-January. In its response, which will be published on Friday, the city regulator – the FCA – will present various programs already underway as part of its growth objective.
But two new ideas will be discussed, concerning mortgage loans and contactless payments.
Strict rules mean lenders must make sure people can repay their mortgages, by testing them for higher interest rates.
Other rules were also imposed on mortgage lenders after the financial crisis nearly 20 years ago that exposed irresponsible lending and put major financial institutions at risk.
The FCA will point to the current low number of borrowers who are defaulting on their repayments or having their homes repossessed as evidence that it is questioning whether the pendulum has swung too far.
It will examine the balance between its primary objective, which is to protect consumers, and its secondary objective, which is to promote growth.
Lenders would welcome the move, but some might question whether lessons have been learned from the crisis.
Charles Roe, director of mortgages at UK Finance, which represents lenders, said: “Revising mortgage lending rules would help address affordability issues, not just for first-time buyers, but also for those looking to climb the housing ladder.
“Banks will always lend responsibly, but current rules limit the number of people who can get a mortgage and so could be relaxed.”
The FCA’s second new idea is to remove the £100 limit on contactless cards, to make spending easier.
When contactless card payments were introduced in 2007, the transaction limit was set at £10. Cards were typically used in this way in place of loose change when purchasing snacks, papers, and occasional groceries.
The cap was raised gradually, to £20 in 2012, then to £30 in 2015, before rising to £100 in October 2021.
Both ideas would be designed to encourage spending, but could also be inflationary. They are expected to be subject to review and consultation, so there are unlikely to be any imminent changes, even if approved.
