{"id":412375,"date":"2026-02-07T04:59:08","date_gmt":"2026-02-07T04:59:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/412375\/"},"modified":"2026-02-07T04:59:08","modified_gmt":"2026-02-07T04:59:08","slug":"has-the-uk-mortgage-market-gone-mad","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/412375\/","title":{"rendered":"Has the UK mortgage market gone mad?"},"content":{"rendered":"

Larger loans, smaller deposits and fewer affordability tests have made a comeback as the government seeks to boost economic growth and homeownership.<\/p>\n

But experts who helped to introduce tougher mortgage rules after the financial crisis have warned of the dangers of relaxing the lending restrictions that were designed to protect borrowers and banks.<\/p>\n

Most high street lenders have eased the stress tests used to check whether homeowners could still afford their repayments if interest rates rose. It has also become easier to borrow more, relative to your income, and to find a mortgage if you have less than a 5 per cent deposit. <\/p>\n

Some 11 lenders, including Barclays, HSBC, Nationwide Building Society and NatWest, now allow applicants to borrow at least six times their salary, while on Tuesday Santander released a deal for homebuyers with as little as a 2 per cent deposit<\/a>.<\/p>\n

Some lenders do not require a deposit at all, and the share of new mortgages available at more than 95 per cent loan to value (LTV) in the third quarter of last year hit its highest level since 2009, according to the Financial Conduct Authority (FCA), the City regulator. Loans at more than 95 per cent LTV are still rare, however, accounting for 0.59 per cent of all new loans.<\/p>\n

Banks and building societies say that their more generous lending will help more people to get on the ladder at a time of high house prices. The average home in England cost 7.7 times the average salary in 2024 while the average home in Wales was 5.9 times the average salary, according to the Office for National Statistics.<\/p>\n

Sir John Vickers, the chairman of the Independent Commission on Banking after the financial crisis, said: \u201cHistory has had repeated examples of relaxations of regulation followed by crises, followed by tightening of regulation. And then it repeats. It\u2019s important that we don\u2019t let ourselves go back into that sort of cycle.\u201d<\/p>\n

\u2022 House prices rose 1% in year to January after budget blip<\/a><\/p>\n

The rules on the amount of capital that banks have to hold to safeguard against insolvency could be relaxed from 2027, under plans announced by the Bank of England in December.<\/p>\n

Vickers said he was concerned that more high LTV lending coming at the same time could put banks in a precarious position. \u201cIf banks have plenty of equity capital then we can be much more relaxed about LTV ratios and so on. It\u2019s when they\u2019re sailing close to the wind on equity capital that we have to be concerned about all those other aspects too.\u201d<\/p>\n

Sir Charlie Bean, the deputy governor of the Bank of England between 2008 and 2014, said: \u201cThe government wants to push for increased mortgage availability and encourage looser requirements. That may well be at the cost of increasing the risk to financial stability further down the road, particularly if it\u2019s pushed too far.\u201d<\/p>\n

The FCA is about to run a consultation on further changes to the lending rules, including making it easier for first-time buyers to take out interest-only mortgages. Some argue that this could be a good thing if it gets more people on to the housing ladder and out of renting, which is often more expensive. But there are worries that the trade-offs have not been fully considered.<\/p>\n

Charles Randell, a former chairman of the FCA, said: \u201cThe system is much better capitalised than it was before the financial crisis and we\u2019re not seeing the mad products and lack of investigation of affordability that got people into trouble in 2007 and 2008.<\/p>\n

\u201cHowever, politicians need to accept that if you loosen the regulatory requirements, that could mean higher defaults in a downturn and there could be mortgage prisoners who find themselves in default and unable to remortgage if their lender won\u2019t or can\u2019t offer them another deal.\u201d<\/p>\n

The tough rules<\/p>\n

Rules were tightened up to stop the risks of borrowers defaulting on loans and so leaving banks needing to be bailed out by the taxpayer again.<\/p>\n

While there were no specific rules about low-deposit loans, the Financial Services Authority (which was replaced by the FCA in 2013) warned in October 2009 about possible \u201ctoxic\u201d combinations, such as high LTV lending to those with unstable incomes. As a consequence, mortgages for those with less than a 5 per cent deposit largely disappeared.<\/p>\n

Since April 2014 borrowers have had to pass affordability and stress tests and anyone wanting an interest-only mortgage has had to prove that they have ways of repaying the loan, such as from investments or by selling a business.<\/p>\n

In 2016 the proportion of a bank\u2019s mortgages that could be issued at more than 4.5 times the borrower\u2019s income was capped at 15 per cent a year. The Bank of England also forced lenders to test whether applicants could afford their mortgage repayments at a rate 3 percentage points higher than they were paying. <\/p>\n

Bean, who was on the Bank of England\u2019s financial policy committee at the time, said: \u201cWe were getting worried that as the economy was getting back to a reasonable growth rate and the housing market was starting to pick up, there were signs that mortgage lenders were starting to become a bit more risk-loving, and that there was a risk of them extending too many high loans relative to incomes.<\/p>\n

\u201cIf you have a lot of high loan-to-income ratio mortgages, there\u2019s more chance of those defaulting if interest rates rise or if there\u2019s a recession, and so potentially more risk of the bank getting into trouble.\u201d<\/p>\n

Time to relax the rules?<\/p>\n

Some of these restrictions are now being chipped away. The Bank of England requirement to test affordability at 3 percentage points above a borrower\u2019s agreed mortgage rate was removed in 2022. And last March the FCA suggested that lenders could be even more flexible with their own stress-testing rules, which it said might be \u201cunnecessarily restricting access to otherwise affordable mortgages\u201d.<\/p>\n

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But, while interest rates have come down recently \u2014 the Bank of England base rate is 3.75 per cent, having been cut six times from 5.25 per cent in July 2024 \u2014 it could be risky to assume that rates will not rise again. After more than a decade of rock-bottom rates following the financial crisis, they rose rapidly during 2022 and 2023 as the Bank of England tried to tackle soaring inflation.<\/p>\n

Randell said: \u201cIt\u2019s not inconceivable that there will be a big geopolitical event that drives up inflation and leads to a recession, so that interest rates remain high, or even go up, and people struggle to pay their mortgages because of unemployment or reduced working hours.\u201d<\/p>\n

The Bank of England began a review into the 15 per cent cap in July, and said that lenders could apply for permission to exceed it, as long as the overall average of such mortgages across the industry did not exceed 15 per cent. It is planning a consultation with industry insiders on the same subject this year. Before the cap in 2014, only about 10 per cent of new mortgages were issued at more than 4.5 times a borrower\u2019s salary.<\/p>\n

Bean said: \u201cEasier lending rules enable some people to get on the housing ladder now, but we know the general effect is just to drive up house prices. And it doesn\u2019t really solve the problem, which is the lack of housing. We have a track record in this country of continually acting on the wrong side of the market \u2014 trying to act on the demand side and make it easier for people to borrow, instead of really acting on the supply side.\u201d<\/p>\n

The rules, however, are still far tougher than they were in the risky lending days before the financial crisis. Chris Sykes from the mortgage broker MSP Financial Solutions said most low-deposit loans required buyers to fix for at least five years to reduce the risk of them being left in negative equity.<\/p>\n

\u201cAnd we now have more strict measures in place to define what is affordable; borrowers are not allowed to self-certify their incomes like before; and there are strict criteria around things like interest-only,\u201d he said. \u201cWe are miles away from how things were before 2008.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Larger loans, smaller deposits and fewer affordability tests have made a comeback as the government seeks to boost…\n","protected":false},"author":2,"featured_media":412376,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,56,54,55],"class_list":["post-412375","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/412375","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=412375"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/412375\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/412376"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=412375"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=412375"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=412375"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}