The government is calling on the government to review the industry’s loan-to-income mortgage cap to help more first-time home buyers enter the real estate ladder.
Like other lenders, a new loan that is no more than 15% of the total loan is borrowed from or more than 4.5 times their income.
But it says the limit limits the number it can lend responsibly to potential home buyers.
It noted that its Helper loan was launched in April 2021, which accounted for 23% of FTB mortgages nationwide last year.
Lenders are able to increase loans from 5.5 times to six times in late September through the product, which allows higher loans to income loans up to 95% of loans to value.
Last year, the average loan size of FTB increased from £159,000 in 2020 to around £197,000.
It was noted nationwide that the average helper loan last year was as high as 26%, about £249,000.
But last month, the minimum income threshold for loan applicants was raised nationwide from £35,000 to £40,000, citing the need to remain within the regulatory LTI loan limit.
“We think it’s important to put FTBS first given how hard it is on the housing ladder.
“Our enhanced help mortgages are very popular among first-time home buyers and we are committed to finding new ways to simplify affordability.
“Increasing the loan cap from loans to income will also allow lenders to support more first-time buyers.”
However, regulators are concerned that loose lending will lead to higher mortgages, which are currently running around 1,000 people every three months.
Last month, Bank of England Governor Andrew Bailey told the Finance Committee that a “public debate” is needed for the trade-off between high income and more people entering the mortgage market, which could lead to lower stress test.
Bailey told MPs that Britain has experienced a series of “significant economic shocks over the past five years”, such as the pandemic and the Ukrainian war.
However, the country has not seen the rise in collection rates seen by homeowners during the 2008 financial crisis, partly because the mortgage rules regulators have “helped”.
Bank of England executive director Nathanaël Benjamin also added at the meeting that if the stress tests are lowered without increasing the construction of the house, it will only see “home prices rise”.
Also last month, Rathi, CEO of the Financial Conduct Authority, called on the government to set a certain level of mortgage defaults, which is acceptable if lending rules are relaxed.
“We need to have a conversation about the risks in Congress,” Rathi said.
The formal power to lift loans to income limits depends on the Financial Policy Committee chaired by Bailey, where Rathi also sat – the cap was proposed in 2014.
