First Time Buyer Mortgage Rules Relaxation

Strict mortgage lending rules could be relaxed to make it easier for people to borrow for home purchases, as regulators respond to calls for measures to boost the economy.

In a newly released letter, the Financial Conduct Authority (FCA), the UK’s financial regulator, announced plans to explore simplifying rules introduced after the 2008 financial crisis. These efforts will likely reassess the balance between protecting borrowers and increasing access to home loans—potentially a welcome development for lenders.

This follows a December request from Prime Minister Sir Keir Starmer, the Chancellor, and the Business Secretary, who urged the UK’s main regulators to propose reforms that could drive economic growth. Regulators were given a mid-January deadline to respond, and in its Friday publication, the FCA outlined ongoing initiatives while highlighting new ideas regarding mortgages.

The FCA’s proposals include reassessing borrowing limits for first-time buyers and potentially increasing the availability of loans for customers with smaller deposits.

Why is the FCA considering changing the rules?

In December, the government tasked the UK’s main regulators with providing “concrete proposals” to help boost economic growth.

Relaxing mortgage lending rules was among the FCA’s suggestions in its response to the government on Friday. Chief executive Nikhil Rathi stated that the FCA, which aims to reduce the "regulatory burden," would:

“Begin simplifying responsible lending and advice rules for mortgages, supporting home ownership and opening a discussion on the balance between access to lending and levels of defaults.”

The FCA also plans to work with the government to remove “overlapping standards” such as the Mortgage Charter. Many lenders signed the charter to assist borrowers struggling with repayments amid higher mortgage rates, although banks and building societies were already providing various forms of support.

Mortgage lending rules were tightened after the 2008 financial crisis to prevent a return to irresponsible lending practices.

What deposit do first time buyers usually need to get a mortgage?

Typically, lenders require a deposit of at least 5% of a property's value. However, providing a larger deposit generally results in lower interest rates on the mortgage.

Recent analysis found that first-time buyers now face significantly higher costs. Someone newly stepping onto the property ladder can expect to pay around £400 more per month for their mortgage than they would have five years ago.

Calculations by Rightmove revealed that the average first-time buyer mortgage payment has increased by 61% since 2019, rising from £667 to £1,075 per month. The company urged the government to "address the difficulties of saving up a large enough deposit and being able to borrow enough from a lender."

Current rules require lenders to assess borrowers’ ability to repay mortgages, including stress tests for higher interest rates. These measures, implemented after the financial crisis, aimed to curb reckless lending but may now be overly restrictive.

Need mortgage advice as a first time buyer?

Premier Mortgage Services has been providing mortgage advice to first time buyers for over 30 years. Talk to a qualified broker with initial free of charge advice by contacting us here, or by calling 0115 949 9988.