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Chancellor Rachel Reeves has backed plans by Britain’s finance agency to examine ways to allow banks to take on more mortgage risk to help more people own their own homes.
The chancellor told the Financial Times that she welcomed the Financial Conduct Authority’s proposals to lift mortgage caps and was “absolutely open to considering ideas that can encourage home ownership and help working families get on the housing ladder”.
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 stalled in the second half of last year.
With her self-imposed fiscal rules under pressure and business sentiment suffering after her decision in the October Budget to increase employers’ National Insurance contributions, the Chancellor has been under heavy political pressure since the start of the year.
The finance ministry has been at the center of government efforts to encourage regulators to come up with measures to boost growth. Reeves met with many UK policymakers last week to hear their ideas.
“My biggest concern is that we are regulated by risk while ignoring growth,” Reeves said. “We must ensure that regulators also consider the impact of their policies on growth – that is what we are determined to do as a reform government.”
FCA said in your letter the prime minister announced on Friday that he would “start simplifying the rules for responsible lending and mortgage advice, supporting home ownership and opening up the debate on the balance between access to credit and default levels”.
Mortgage lending in the UK is controlled by a combination of FCA and Bank of England rules, most of which were introduced after the 2008 financial crisis when several banks had to be bailed out by the government.
The rules limit how much banks can lend as a multiple of a person’s income or property value and require affordability tests to check whether borrowers can cope with future interest rate rises.
“Home ownership fell under the last government and we are determined to change that,” Reeves said, adding that the Treasury would “consider the FCA’s ideas in this area”.
The proportion of households owning their own accommodation fell from 64.3 per cent in 2011 to 62.5 per cent in 2021, according to the Office for National Statistics.
Richard Donnell, chief executive of property portal Zoopla, said the “big barrier” stopping more people getting a mortgage was the FCA’s affordability stress test requirement, which means banks have to test whether borrowers can cope with rising borrowing costs.
Reeves has come under fire in recent weeks after she left herself a small £9.9bn error on her budget rule to fund day-to-day government spending from tax receipts until 2029/30. There is a risk that this margin will be wiped out by any resurgence in bond yields.
She said the budget struck the right balance when it comes to headroom against her rule and that the Office for Budget Responsibility’s March forecast will rely on a host of factors, not just bond yields.
While global markets have experienced “headwinds,” fiscal rules remain “non-negotiable,” Reeves added. This means that they will not change the rules published at the time of passing the budget, she added.
Asked if she could rule out a tax increase in March to ensure those rules are met, Reeves reiterated that “we don’t have a budget in March. . . my commitment to one fiscal event per year remains.”
Reeves admitted the budget, which has been heavily criticized by business leaders for increasing employer NI and wage costs, involved making “difficult decisions”. But she insisted that they are the right ones to get the economy back on a solid footing.
She has yet to hear a serious alternative to the measures, she said.
“Just imagine the alternative, if I hadn’t taken those tough decisions to put the public finances on a solid footing, what that would have done to market confidence in Britain,” she said. “I had to deal with the inheritance I had. This has meant making tough decisions, but they are 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 business person” gave her hope that “there is room” to negotiate a trade deal with the new administration.
Although talks have yet to start, the chancellor said any trade deal with Washington “would have to be right for the UK”, adding that Labor would not back down from its existing stance on banning imports of US chlorine-washed chicken or hormone-fed beef.
