Labour mortgage changes could trigger new market crash warns expert | Personal Finance | Finance
Britain is sleepwalking into another financial crisis, an expert is warning, as Labour’s push to relax mortgage rules threatens to unleash a new wave of reckless lending.
Regulators have been called on to loosen lending restrictions in a bid to kickstart the housing market and boost home ownership – but critics fear the move could unravel hard-won protections brought in after the 2008 crash.
In scenes that could be reminiscent of the run-up to the global financial meltdown, lenders are already scrapping safeguards and throwing cash at borrowers with ever-smaller deposits and income multiples.
Santander led the charge last month, easing stress tests that ensure buyers can cope if interest rates rise. That tweak alone could allow borrowers to take on tens of thousands more debt – with Halifax and BM Solutions quickly following suit.
At the same time, high street giants including Nationwide, NatWest, and Barclays have begun handing out mortgages worth up to six times a borrower’s salary – a sharp rise from the more cautious 4.5 times norm that’s kept the market stable in recent years.
The number of low-deposit deals has soared. There are now 442 mortgage offers available with just a 5% deposit, more than double the number a year ago, according to Moneyfacts. Deals for 10% deposits are also booming.
Experts warn this dash for growth could backfire disastrously. “We’re unlearning the lessons of the financial crisis,” said Andrew Whishart, of Berenberg.
He told the Telegraph: “The risk is people borrow more, house prices surge, and when interest rates rise again, they’ll be exposed. It’s a recipe for a housing bubble.”
The shift comes after Chancellor Rachel Reeves rewrote the rules for regulators – demanding the Financial Conduct Authority (FCA) prioritise economic growth alongside consumer protection. The FCA has since issued fresh guidance urging lenders to take a more ‘flexible’ approach.
The rules in question were brought in post-2008 to stop people taking out loans they couldn’t afford. One key measure – the stress test – assesses whether buyers can still repay if interest rates spike. Until 2022, this buffer stood at three percentage points. It’s now down to just one.
And with rates still volatile following the Liz Truss mini-Budget, many fear that scrapping these checks now would be madness.
The Treasury has not issued any public comment on the rumoured proposals. However, it is encouraging city watchdogs at the Financial Conduct Authority to relax red tape around borrowing and investing. It is thought the FCA will back a relaxation of lending restrictions.
