Housing market hit by red tape, says banking lobbyist

MORTGAGE red tape is stopping firsttime buyers from getting on the property ladder and holding back economic growth, a top banking lobbyist says.

David Postings, the chief executive of UK Finance, said regulations introduced in the wake of the financial crisis were making lenders more risk-averse than they need to be and stopping banks from offering mortgages to people who could afford them.

Under reforms introduced post2008, banks can only offer a limited number of mortgages that are more than 4.5 times a buyer’s income.

Borrowers must also be stress tested to ensure they would be able to withstand a surge in interest rates that would push up repayments.

The rules were designed in an era of ultra-low interest rates, meaning tests for increases in borrowing costs were relatively modest.

However, a surge in interest rates over the past two years has made the current system much more onerous for would-be buyers. High house prices and historically sluggish wage growth mean more first-time buyers are also seeking mortgages above the 4.5 times income threshold.

This combination of stretched affordability and tough tests means only the most financially secure are able to get mortgages under this system.

First-time mortgage borrowing slumped to a 10-year low in 2023, falling 22.4pc on the prior year.

Mr Postings said the low level of home repossessions over the past two years suggested the lending rules were too conservative. Repossessions in the last three months of 2023 were down by nearly half compared with 2019.

Mr Postings said in a speech yesterday: “This combination of affordability stretch coupled with comparatively low arrears and repossessions made me wonder if the pendulum has swung a little too far … Whichever party forms the next government will have to wrestle with this as they are both looking to economic growth to help provide improved public services.”

The Bank of England declined to comment.