Rachel Reeves supports plans to lower mortgage lending limits

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Chancellor Rachel Reeves has backed the UK finance minister’s plans to explore ways to allow banks to take more credit risks to help more people own their homes.

The Chancellor told the Financial Times that he welcomed proposals from the Financial Conduct Authority to raise mortgage limits and was “absolutely open to looking at ideas that would strengthen home ownership and help working families to get into housing”.

Reeves heads to Davos this week to pitch the UK as an investment destination at the World Economic Forum as the Labor government tries to boost growth after the economy slumped in the second half of last year.

With his voluntary budget rules under pressure and business sentiment following his October Budget decision to raise the national insurer, the councilor has been under intense political pressure from the start. of the year.

The Treasury has been at the heart of the government’s efforts to push regulators to come up with measures to boost growth. Reeves met with a number of UK officials last week to get their views.

“My biggest concern is that we are risk-driven while ignoring growth,” Reeves said. “We need to make sure that the authorities also consider the impact of their policies on growth – that is what we intend to do as a reforming government.”

The FCA said so its letter to the prime minister published on Friday that “it will begin to simplify the rules of loans and advice responsible for mortgages, to support homeowners and to open discussions on the balance between access to loans and the conditions of limitations” .

UK lending is governed by a combination 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. government.

The rules restrict how much banks can lend as a percentage of a person’s income or property value and require tests to gauge whether borrowers can handle rising interest rates over time. coming.

“Home ownership fell under the previous government and we intend to change that,” Reeves said, adding that the Treasury would “look at the FCA’s views in this area”.

The number of households owning their own home has fallen from 64.3 per cent in 2011 to 62.5 per cent in 2021, according to the Office for National Statistics.

Richard Donnell, managing director at property portal Zoopla, said the “biggest barrier” preventing many people from getting a mortgage was the FCA’s requirement to clamp down on vetting capabilities, which meant banks had to carry out checks of whether borrowers can cope with rising borrowing costs.

Reeves has come under fire in recent weeks after he left a narrow £9.9bn shortfall against his budget bill to fund day-to-day government spending from tax receipts in 2029/ 30. Those limits are at risk of being erased by any renewed increase in bond yields.

He said that the Budget had the right balance when it comes to the head against his law and that the forecast in March from the Office of Financial Accountability will depend on many factors, not just the bond yield.

While global markets experienced “great wind”, monetary policy remained “unsettled”, Reeves added. That meant he would not make changes to the laws announced during the Budget, he added.

When asked if he would hold off on raising taxes in March to ensure he meets those rules, Reeves reiterated that “we don’t have a Budget in March . . . my commitment is to one budget event a year.” it’s still there.”

Reeves admitted that the Budget, which has been widely criticized by business leaders for raising employer NI and wage costs, involved taking “difficult decisions”. But he emphasized that they are the right ones to restore the economy to a solid state.

He said that he had yet to hear a deeper version of the steps.

“Just imagine another way, if I hadn’t made the tough decisions to put the public finances on a solid footing, what it would have done to promote confidence in Britain,” he said. I had to deal with the legacy I had. That meant making tough decisions but the right decisions to get our economy back on a solid footing. ”

Speaking ahead of Donald Trump’s inauguration as US president, Reeves said the fact that he was “obviously a deal maker” made him hopeful that “there is room ” of negotiating a trade agreement with the new administration.

As talks are set to begin, the chancellor said any trade deal with Washington “would have to be good for the UK”, adding that Labor would not abandon its existing position. without the addition of US chlorine-washed chicken or hormone-fed beef.