The Bank of England is readying itself to relax mortgage lending rules despite fears it will trigger a housing bubble, it has been reported.
The Telegraph reported that policymakers are looking at relaxing affordability checks for borrowers. The rule changes are being mulled amid a review of market restrictions this will finish shortly.
Officials are examining reducing the additional interest rate charge used to test borrowers’ ability to pay the reversion rate after an initial deal ends.
Tougher checks were introduced in 2014 following the financial crisis. However it made the process harder for some first-time buyers amid low borrowing costs.
Economists have warned that easing the rules may push property prices up into “bubble territory.”
Andrew Wishart, housing economist at Capital Economics, told The Telegraph: “Loosening the affordability test increases the chances that you continue to get large increases in house prices, which would start to make us worry about the housing market entering bubble territory.
“It would help perpetuate very strong demand that might take prices to an unsustainable level.”
Mark Harris, chief executive of mortgage broker SPF Private Clients told CityA.M. there was a risk those who would benefit from changes “will also find that the property they wish to buy will rise in value as well.”
He added: “The rate environment has changed significantly since the Mortgage Market Review was introduced. Stressing at the lender’s standard variable rate plus 3 per cent, given the Bank of England’s expectations with regard to interest rates, seems harsh.
“One could ask whether the regulator can justify its position of not helping first-time buyers get on the property ladder where they would potentially benefit not only from paying less per month than they would on rent but also from equity growth were the value of the property to rise over time.”
The average UK house cost 0.9 per cent more on average in November than it did the month before while year on year growth has soared by 10 per cent.
Buyers dished out an average of £252,687 to snap up a new home, according to Nationwide’s figures published last week.
Robert Gardner, Nationwide’s chief economist, said: “Activity has been extremely buoyant in 2021. The number of housing transactions so far this year has already exceeded the number recorded in 2020 with two months still to go and is actually tracking close to the number seen at the same stage in 2007, before the global financial crisis struck.”