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MoneyWeek article - could relaxed mortgage lending rules boost the UK economy?

Journalist: Marc Shoffman, Freelance

ended 17. January 2025

Hello,

There are reports that regulators have suggested to Chancellor Rachel Reeves that relaxing mortgage lending rules could boost the economy.

I am seeking views on whether this is a good idea. Should banks be able to provide more high loan to value loans? Should affordability rules be changes to include payments such as rent? What are the risks? What other steps could be taken?

 

12 responses from the Newspage community

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Mark Eaton
COO at April Mortgages
Relaxing mortgage lending rules could help tackle affordability challenges that extend beyond first-time buyers and impact a wide range of potential homeowners. The current rules are overly restrictive, and more needs to be done to stimulate the market and create opportunities for those locked out of homeownership. We support the spirit of the concept but only if we ensure borrowers are protected from the future risks of increased monthly mortgage payments often posed by short term fixed rate products. Concerns about higher borrowing levels leading to payment shocks could be mitigated by encouraging borrowers to opt for more modern longer-term mortgage products as is the case in Europe and more recently introduced into the UK.
These options would reduce the risks associated with end-of-term rate adjustments and provide greater financial stability for homeowners.
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Katy Eatenton
Mortgage & Protection Specialist at Eatenton Finance
This shows a degree of desperation from Labour. What happened to their plans to build 1.5m new homes? That would be the best way to help first-time buyers but it may well be a pipe dream. If the right balance can be struck then relaxing the mortgage rules could provide a boost to aspiring first-time buyers. However, this has to be done responsibly as otherwise many people could be left exposed. Some could perceive this as a quick-fix solution when the real solution is building more homes.
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Ben Perks
Managing Director at Orchard Financial Advisers
No doubt in my mind that relaxing mortgage rules would give the economy a major boost. As long as they are relaxed responsibly and we don’t set borrowers up for a bite in the backside in years to come.
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Simon Bridgland
Broker at Charwin Private Clients
Think back to the early 2000’s the proliferation of relaxed regulation, kind of bit the industry and the public on the backside. But given it comes as a real boost to growth if the breaks on lending are eased off a little, it could help produce the steam needed to give the UK the growth boost it so dearly needs. Rather than cutting the breaks on the whole market, just by allowing lenders to support the bottom end of the market in first time buyers, by using payment history to support borrowing capacity will without doubt give it a lift. Borrowers living at home, not renting, would need to be helped, so a relaxation on affordability rules for those borrowers, to level up the borrowing field would be required. The buy to let market is crying out for some rest bite from the heavy burden, of taxation and property upgrades, being dealt out to landlords. Landlordism, has seemingly been vilified for a while now and it needs to stop to attract investment and support the need for rental homes.
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Aaron Strutt
Product and Communications Director at Trinity Financial
First-time buyers clearly need more help when it comes to securing sufficiently large mortgages, as affordability and borrowing caps are a huge issue which stops many, particularly younger people, from getting on the property ladder. Nationwide started offering up to six times salary mortgages last year after the lender decided it needed to do more to support first-time buyers. This was a pretty extreme move from the normally risk-averse building society, but it meant many borrowers could borrow up to 33% more money. Nothing will change the fact that we need more houses and incentives to persuade many older people to downsize to free up some of the larger family homes.
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Rohit Kohli
Director at The Mortgage Stop
Supporting first-time buyers is always a positive step, and easing affordability rules could make homeownership more attainable for many. However, we must ensure this approach doesn’t inadvertently fuel rising house prices by increasing demand without addressing the chronic supply shortages in the housing market. To truly stimulate the property market and help first-time buyers, the government must tackle the root causes of the supply problem. Too many developers are sitting on land with planning permission, and there’s an unacceptable number of vacant properties that could be put to use. While these proposals may give buyers more borrowing power, they echo the principles of schemes like Help to Buy, which improved access but didn’t necessarily lead to long-term affordability. A balanced approach addressing both supply and demand is needed to have a lasting impact.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
We think this would help to further stimulate the UK economy. More activity in buying/selling homes will also create a greater tax take for the government, both in terms of stamp duty, but also businesses and individuals involved in the property market like lenders, brokers, estate agents, solicitors and surveyors paying more in tax.

There would need to be measures in place to avoid things swining the other way with lending rules so lax that we create an environment that's ripe for more defaults like 2008, which is why the lending rules tightened up in the first place.
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Elliott Culley
Director at Switch Mortgage Finance
Relaxing the lending rules to allow mortgage providers to offer better range of products for applicants to access home ownership would help to support the market. Home ownership is becoming increasingly more difficult and changes to stamp duty in April will increase the amount of buyers with smaller deposits, which may lead to an increase in borrower's requiring these products. You have to be careful in how far you allow the rules to be stretched but a loosening of the current rules is likely to have a positive impact.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
Relaxing mortgage lending rules to stimulate the economy is an intriguing idea—though it feels a bit like giving a caffeine boost to someone who really needs a nap. While higher loan-to-value options and including rent payments in affordability checks could help first-time buyers, we must tread carefully.

Remember, affordability rules aren’t just red tape—they’re there to prevent déjà vu of financial crises past. Factoring in rent payments might sound logical, but would it truly reflect long-term affordability in an unpredictable economic climate?

Perhaps instead of loosening the rules, we should focus on sustainable solutions: building affordable homes, simplifying planning permissions, or supporting innovative lending schemes that balance opportunity with caution.

The risks? Well, let’s not trade short-term growth for long-term headaches. Sometimes, slow and steady really does win the race.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
Relaxing mortgage lending rules to stimulate the economy is an intriguing idea—though it feels a bit like giving a caffeine boost to someone who really needs a nap. While higher loan-to-value options and including rent payments in affordability checks could help first-time buyers, we must tread carefully.

Remember, affordability rules aren’t just red tape—they’re there to prevent déjà vu of financial crises past. Factoring in rent payments might sound logical, but would it truly reflect long-term affordability in an unpredictable economic climate?

Perhaps instead of loosening the rules, we should focus on sustainable solutions: building affordable homes, simplifying planning permissions, or supporting innovative lending schemes that balance opportunity with caution.

The risks? Well, let’s not trade short-term growth for long-term headaches. Sometimes, slow and steady really does win the race.
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Jonathan Moser
CEO at Mo'Living
One obvious benefit of relaxing the mortgage rules is that more first-time buyers could be helped onto the property ladder. However, there is a risk that enabling people to borrow more will once again send house prices skyrocketing unless the underlying supply issue is resolved. That arguably risks leaving people exposed as they may have overborrowed and potentially overpaid. The government, along with regulators, should tread carefully. The theory is good but the practice could have unintended consequences.
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Graham Cox
Director at Bridging Hub
Relaxing the mortgage regulations will simply make housing even more unaffordable by introducing further demand side measures, whilst ignoring the fundamental problem, lack of supply. It's completely the wrong way around. To really grow the economy, massively increase house building, relax the planning laws and withdraw other damaging demand-side policies like Right to Buy. We need to stop property prices going up for a sustained period, so that wages can catch up, leaving people with more money to spend on the high street.