Reeves' Mortgage Overhaul: A Blow to First-Time Buyers' Pockets

In a move that has raised eyebrows among housing experts and economists, Chancellor Rachel Reeves has backed proposals to relax mortgage lending rules, potentially driving up house prices for first-time buyers by as much as £20,000. The Financial Conduct Authority (FCA) has suggested simplifying responsible lending and advice rules for mortgages, supporting home ownership, and opening a discussion on the balance between access to lending and levels of defaults. However, critics warn that this could lead to higher house prices and risky borrowing levels.

The FCA's proposals include reviewing how much first-time buyers can borrow and potentially issuing more loans to customers with smaller deposits. Savills, a leading estate agent, has warned that such changes could push up first-time buyer home prices by 4% to £494,122 in London and by around 3% across the UK, adding £7,679 to the average first-time buyer home. Lucian Cook, head of residential research at Savills, stated, "Clearly, it is an inevitable consequence that some of the relaxation in mortgage regulation will feed through into higher house prices, and therefore it is inevitable that it is not going to be a completely efficient measure."

The challenge for policymakers is to design the changes in such a way that they genuinely make it easier for people to get into the property market without driving up house prices. However, with the capital's affordability already severely constrained, the risk of higher prices is significant. Mr. Cook added, "The impact would be biggest in London where higher house prices mean more people are constrained by loan-to-income stress tests."

FCA chief executive Nikhil Rathi has warned that thousands more families could have their homes repossessed every year if the rules were relaxed. In a select committee hearing, he asked, "If the numbers went up from 1,000 to 2,000 … would that be an acceptable outcome here in Parliament, or would you say to us: ‘Why on earth have you let it go up by 100pc?’" Any changes put forward by the FCA would be subject to a public consultation before they could be taken forward.

The mortgage rules overhaul comes at a time when the economy is showing signs of improvement, with inflation dropping to 2.5% in December. However, some experts warn of complications ahead, with Daniel Casali of Evelyn Partners noting that "services CPI inflation remains elevated at 4.4% year-over-year." Rocio Concha, Which? Director of Policy and Advocacy, urged caution: "The Financial Conduct Authority and government are right to explore ways to boost economic growth, and Which? would never stand in the way of cutting unnecessary red tape. However, viewing consumer protections as a barrier to economic growth is misguided."

In conclusion, Reeves' mortgage overhaul risks driving up first-time buyer house prices in London by as much as £20,000, with potential consequences for the broader UK housing market. While the proposals aim to boost economic growth and homeownership, policymakers must carefully balance the relaxation of lending rules with responsible lending practices to avoid an increase in defaults or a repeat of the 2008 financial crisis.