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Chancellor Rachel Reeves has backed plans by the UK financial watchdog to examine ways of allowing more mortgage risk-taking by banks to help more people own their own homes.
The chancellor told the Financial Times that she welcomed proposals from the Financial Conduct Authority to lift limits on mortgages and was “absolutely open to looking at ideas that can boost home ownership and help working families get on the housing ladder”.
Reeves is heading to Davos this week to tout the UK as an investment destination at the World Economic Forum as the Labour government tries to bolster growth after the economy flatlined in the second half of last year.
With her self-imposed fiscal rules under pressure and business sentiment suffering following her decision in October’s Budget to raise employer national insurance contributions, the chancellor has been under heavy political pressure since the start of the year.
The Treasury has been at the heart of the government’s effort to push regulators to come up with growth-enhancing measures. Reeves met many of the UK’s rulemakers last week to hear their ideas.
“My greatest concern is we are regulated for risk whilst ignoring growth,” Reeves said. “We need to make sure regulators are also taking into account the impact of their policies on growth — that is what we are determined to do as a reforming government.”
The FCA said in its letter to the prime minister published on Friday that it would “begin 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”.
UK mortgage lending is controlled by a mixture of rules from the FCA and the Bank of England, most of which were introduced after the 2008 financial crisis when several banks had to be bailed out by the state.
The rules restrict how much banks can lend as a multiple of a person’s income or the value of a property and require affordability tests to check if borrowers can cope with future interest rate rises.
“Home ownership declined under the last government and we are determined to turn that around,” Reeves said, adding that the Treasury would “look at the FCA’s ideas in this area”.
The proportion of households that owned their own accommodation fell from 64.3 per cent in 2011 to 62.5 per cent in 2021, according to the Office for National Statistics.
Richard Donnell, executive director at property portal Zoopla, said the “big hurdle” preventing more people from getting a mortgage was the FCA’s requirement to stress test affordability, which means banks have to test if borrowers can cope with a rise in borrowing costs.
Reeves has come under fire in recent weeks after leaving herself a slender £9.9bn margin of error against her budget rule of funding day-to-day government spending from tax receipts by 2029/30. That margin is at risk of being erased by any renewed surge in bond yields.
She said the Budget had got the balance right when it came to headroom against her rule and that the forecast in March from the Office for Budget Responsibility would rely on a host of factors, not just bond yields.
While global markets had experienced “headwinds”, the fiscal rules remained “non-negotiable”, Reeves added. That meant she would not be making any changes to the rules published at the time of the Budget, she added.
Asked if she could rule out tax increases in March to ensure she met those rules, Reeves reiterated that “we are not having a Budget in March . . . my commitment to one fiscal event a year remains.”
Reeves acknowledged that the Budget, which has been heavily criticised by business leaders for raising employer NI and wage costs, had involved taking “difficult decisions”. But she insisted they were the right ones to get the economy back on a firm footing.
She had yet to hear a serious alternative to the measures, she said.
“Just imagine the alternative, if I hadn’t made those difficult decisions to put the public finances on a firm footing, what that would have done to market confidence in Britain,” she said. “I had to deal with the inheritance I had. That meant making difficult decisions but they are right decisions to get our economy back on a firm footing.”
Speaking before Donald Trump’s inauguration as US president, Reeves said the fact that he was “obviously a deals person” made her hopeful that “there is scope” to negotiate a trade deal with the new administration.
While talks are yet to start, the chancellor said any trade deal with Washington “would have to be right for the UK”, adding that Labour would not ditch its existing position barring imports of US chlorine-washed chicken or hormone-fed beef.
